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Eversheds Sutherland comment: Budget 2017 - appropriation of capital assets to trading stock

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    Commenting on taxation measures announced at today's Budget, David Jervis, tax partner at Eversheds Sutherland, says:

    "Current rules allow appropriation of a capital asset to trading stock to take place at market value, unless an election is made to reduce any gain or loss to zero, in effect rebasing the transfer value for the purpose of any future corporation tax trading computation.

    "The proposed change will only permit an election where in the absence of an election a chargeable gain will arise. If a capital loss would otherwise arise, the election is no longer possible. So if any allowable (capital) loss arises on appropriation it will no longer be possible to elect for this to become a trading loss.

    "The main significance of the change is likely to be the more restrictive rules which can apply to the set off of capital losses compared to trading losses.

    "Similar changes apply in relation to non ATED (annual tax on enveloped dwellings) related gains under the ATED capital gains tax regime which can apply where a property is within the charge to ATED. The election which is available for non ATED related gains will similarly be subject to the same restriction. There is no change to ATED related gains, to which the election does not currently apply.

    "The main target of the change is understood to be property investors who, prior to a commercial property disposal where the property has been held as an investment to derive property rental income, appropriate the property to trading stock to avoid a capital loss.

    “The change does however have wider implications, applying generally and so of much wider application, impacting on genuine corporate reconstructions undertaken for operational reasons where the flexibility of being able to make the election is now reduced. The change has immediate effect applying to appropriations on or after 8 March 2017."

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