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HMRC internal manual

Capital Gains Manual

Dwellings subject to ATED: interaction with TCGA92/S161 (assets appropriated to trading stock)

Where a person acquires an asset otherwise than as trading stock and later appropriates it for use as stock in their trade, TCGA92/S161 (1) treats the person as having sold the asset for its open market value at the date of appropriation (see CG69200+). The person may elect under TCGA92/S161 (3) to disapply this treatment and instead to roll-over the gain or loss that would have accrued on the deemed sale into the cost of the asset used in computing the profits of the trade.

This treatment is modified where the asset appropriated to trading stock is a dwelling subject to ATED and an ATED-related chargeable gain or allowable loss would accrue on the deemed sale under Section 161 (1). Section 161 (3ZA) prevents the trader from making an election under subsection (3), but allows them to make a different election.

If the trader makes this election under subsection (3ZA) the effect (set out in subsection (3ZB)) is—

  • the trader is treated as selling the asset under section 161 (1)
  • the ATED-related chargeable gain or allowable loss accrues on the deemed sale and cannot be rolled over into computing trading profits
  • the gain or loss accruing on the deemed sale that is not ATED-related is not a chargeable gain or allowable loss
  • the amount of the gain or loss that is not ATED-related is rolled over into trading profits as if under an election under Section 161 (3) (see CG69200).