Taxation of Chargeable Gains Act 1992 Schedule 7A paragraphs 10–10A

Appropriations to stock in trade

Section 161 and Schedule 7A paragraphs 10–10A deal with how pre-entry losses are treated when a company appropriates a capital asset into its trading stock and makes an election to defer the resulting gain or loss.

• When a company transfers a capital asset into trading stock, it is normally treated as having disposed of the asset at market value, which can give rise to a chargeable gain or loss.
• An election under section 161(3) allows the company to roll any resulting loss into a reduced cost of the trading stock rather than crystallising it as a capital loss — but this roll-over cannot include the portion of the loss that would be a pre-entry loss.
• The pre-entry loss element is instead treated as having accrued to the company at the time of the appropriation, so it remains subject to the Schedule 7A restrictions on the use of pre-entry losses within a group.
• A further rule in paragraph 10A prevents the separate relieving provisions in section 161(3ZB)(a) and (b) from applying to any loss that would, without an election under section 161(3ZA), have been a pre-entry loss.