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HMRC internal manual

Capital Gains Manual

Appropriations to stock in trade

TCGA92/S161 (1)

Where an asset (which was acquired by a person otherwise than as trading stock) is later appropriated for use as stock in that person’s trade, the transfer is dealt with for trading profits as if there were a sale and purchase at market value, see BIM33630. For capital gains purposes, TCGA92/S161 (1) deems the asset to have been sold for its open market value at the date of transfer.

Election to defer CG charge

TCGA92/S161 (3)

Collection difficulties might arise because tax on chargeable gains may become due and payable before there has been a factual disposal of the asset. To relieve this problem, the trader may make an election under TCGA92/S161 (3). If an election is made, there will be no chargeable gain on the appropriation of the asset to trading stock. Instead, in the computation of trading profits, the market value of the asset will be reduced by the amount of the chargeable gain. The effect of an election is that the trading profits or losses will include the whole of the income profit and the capital gain accruing on the asset over the whole period of ownership.

Where the appropriation took place before 8 March 2017 it was also possible to make an election when the deemed disposal resulted in a capital loss and the effect was to add the amount of the loss to the cost of the stock for income purposes.  For appropriations into trading stock on or after 8 March 2017 the changes made by Section 26 of Finance (No. 2) Act 2017 mean that only a chargeable gain may be  ”rolled” into the calculation of trading income. 

Under Self Assessment, see CG10301, an election under Section 161 (3) must be made

  • for companies: within two years of the end of the accounting period in which the asset is appropriated for the purposes of the trade as trading stock
  • for others: on or before the first anniversary of the 31 January next following the year of assessment in which ends the period of account in which the asset is appropriated for the purposes of the trade as trading stock.

`Period of account’ means a period for which the accounts of the trade are made up.


If the trade is carried on in partnership, all the partners at the time of appropriation to trading stock must either join in or consent to the election.

Time limit for election

TCGA92/S161 (3A)

For appropriations made in periods covered by Self Assessment the time limit is

  • for Capital Gains Tax cases, one year after the 31 January in the year following that in which the appropriation took place (in other words, 21 months following the end of the year of appropriation)
  • for Corporation Tax cases, two years from the end of the accounting period in which the appropriation took place.

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Assets held at 31/3/82

Where an asset held at 31 March 1982 is appropriated to stock in trade on or after 6 April 1988, the gain accruing on the deemed disposal should be computed in accordance with the provisions of TCGA92/S35 and TCGA92/SCH3, see CG16700+.