Supervening property trade and tax consequences of appropriations to and from trading stock
Supervening property trade and tax consequences of appropriations to and from trading stock

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Supervening property trade and tax consequences of appropriations to and from trading stock
  • Supervening trade
  • Appropriation to trading stock
  • Election for alternative tax treatment
  • Election on transfer intra-group
  • Example
  • Appropriation from trading stock
  • Transfer intra-group
  • Practical applications—evidencing a change in intention

The distinction between trading and investment is key in determining the correct tax treatment of transactions involving land or property. Land, more than most other assets, is capable of being held either as an investment (ie a capital asset) or as trading stock. It is also possible for a taxpayer to acquire a property with one intention but for the taxpayer's intention in relation to that property to change during the course of ownership. This note describes the concept of a supervening trade and sets out the tax consequences of land or property being appropriated to or from trading stock.

In this note, CGT means both capital gains tax and corporation tax on chargeable gains.

Supervening trade

Land acquired as a capital asset or investment may subsequently be developed or dealt with in such a way that it becomes stock of a newly established trade—known as a 'supervening trade'.

There is judicial support for the concept of a supervening trade in obiter dicta (eg Megarry J in the High Court (Chancery Division) in Taylor v Good at 287, albeit that this decision was overturned on appeal).

A supervening trade involves a clear change of intention, after land has been acquired, as to how that land is to be used. An initial intention not to trade may be displaced by a subsequent intention during the course of the

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