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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Measuring the profits (particular trades): land: trading transactions: acquisition and disposal of superior interest: computation of profit

S161 Taxation of Capital Gains Act 1992 (TCGA 1992)

In order to quantify the trading profit relating to the purchase and sale of the freehold by a tenant, you must establish the market value of the tenancy at the time the freehold was acquired.

The tenancy is then treated as if it were appropriated from fixed assets to trading stock thereby invoking S161 TCGA 1992: Bath and West Counties Property Trust Ltd v Thomas [1977] 52TC36.

This market value constitutes the ‘consideration’ on which the capital gain is computed.

It also constitutes a deduction in the computation of the trade profit.