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HMRC internal manual

Capital Gains Manual

Groups: appropriations to trading stock

TCGA92/S173 (1)

If a group company acquires an asset as trading stock from another group member which did not hold the asset as trading stock the recipient is treated by TCGA92/S173 (1) as having acquired the asset otherwise than as trading stock and as having immediately appropriated it to trading stock. This results in a deemed market value disposal by the recipient under TCGA92/S161 (1). The overall result is that the no gain/no loss rule operates in the normal way on the intra-group transfer, and the gain or loss during the transferor’s period of ownership crystallises immediately following the transfer in the hands of the transferee.

TCGA92/S173 only applies if the trade for which the asset is acquired as trading stock is carried on by a UK resident company or is carried on by a non-resident company through a UK permanent establishment. If the trade does not satisfy either of these conditions, the disposal and acquisition of the asset will not be a no gain/no loss disposal and a gain or loss will arise to the disposing company based on a sale at market value.

The transferee may however elect under TCGA92/S161 (3) for the market value at the time of the appropriation to be reduced by the amount of the chargeable gain, or increased by the amount of the allowable loss, which would otherwise arise, see CG69200+. An election eliminates the chargeable gain or allowable loss on the appropriation to trading stock, with a corresponding increase or reduction in trading profits. The transferee can only make an election where the trade is within CTA09/Part 3 Chapter 2.

If an election relates to an asset brought into a group of companies by a company joining the group, paragraph 10 TCGA92/SCH7A restricts the loss which can be rolled over as a reduction in Case I profits. The Case I reduction is restricted by the amount of the pre-entry loss. Detailed guidance on computing pre-entry losses is at CG47400+. There is further guidance on paragraph 10 Schedule 7A at CG47455. The rules in TCGA92/SCH7A was were substantially altered in Finance Act 2011, where a company joined a group before 19 July 2011 the guidance is at CG47600+).

The rule in TCGA92/S173 (1) is needed since an appropriation to trading stock takes the asset outside the scope of capital gains. It applies only where the transferee did, as a question of fact, acquire the asset as trading stock, see Coates v Arndale Properties Ltd 59TC516 and Reed v Nova Securities Ltd 59TC516.


Companies C and D are members of the same group. D is a company dealing in commercial property. In year 1, C acquires an office building for £1M as an investment. C sells the building to D in year 4 at its market value £3M. D acquires the building as trading stock.

The no gain/no loss rule operates on the transfer from C to D, so C’s consideration is £1M plus indexation in years 1 - 4, say £0.2M. D acquires the building at a capital gains cost £1.2M, and makes an immediate deemed disposal at market value £3M. There is accordingly a chargeable gain £1.8M assessable on D. The amount deductible in computing D’s trading profits is £3M.

D may however make an election under TCGA92/S161 (3). The election reduces D’s deemed market value sale proceeds £3M by the amount of the chargeable gain £1.8M. This eliminates the chargeable gain in the hands of D. There is a corresponding adjustment in the computation of trading profits, so the building goes into D’s trading stock at a tax cost £1.2M.