Revenue Note for Guidance

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Revenue Note for Guidance

CHAPTER 6

Transfers of business assets

Overview

This Chapter contains provisions relating to the treatment, for capital gains tax purposes, of transfers of business assets and grants a number of reliefs in respect of such transfers, e.g. the relief on the disposal of a business or farm on retirement (section 598), relief on disposals within the family of a business or farm (section 599) and relief on the transfer of a business to a company (section 600).

596 Appropriations to and from stock in trade

Summary

Where a person appropriates an asset as trading stock of a trade carried on by the person, the asset is deemed to have been disposed of for its market value at the time of appropriation. If such an appropriation gives rise to a chargeable gain, then, instead of paying the tax on the gain, the person may elect to deduct the gain from the market value in determining the value of the asset to be brought into trading stock for income tax purposes. In this way the gain is effectively charged as part of the profits of the trade and not as a capital gain.

Where a person appropriates an asset from the person’s trade or retains it on ceasing to trade, the person is deemed for capital gains tax purposes to have acquired it at that time for the amount brought into the accounts of the trade for income tax purposes in respect of the asset.

Details

Appropriations to stock in trade

(1) The appropriation of an asset as stock in trade constitutes a disposal for the purposes of capital gains tax and the consideration for the purposes of computing a gain or loss is the market value of the asset at the time it is so appropriated. This treatment may, however, be altered by an election under subsection (3).

Appropriations from stock in trade

(2) If a person appropriates an asset which had been held as the person’s stock in trade to some other use or retains such an asset on the trade ceasing, the person is treated for capital gains tax purposes as having acquired the asset at that time for an amount equal to the amount brought into account for the purposes of computing the trade profits for income tax purposes.

Election

(3) A person may elect to have the amount any gain arising from an appropriation to trading stock deducted from the value of the asset to be brought into account as trading stock for income tax purposes. In such a case capital gains tax is not payable on the gain, but the effect of this election is to charge the gain to income tax as part of the profits of the trade. An election may not be made where the appropriation to trading stock gives rise to an allowable loss. Where the trade is carried on in partnership an election does not have effect unless made by all the partners.

Relevant Date: Finance Act 2021