Stock transfers

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Stock transfers
  • Stock adjustments on a cessation or transfer of trade
  • Stock transfers to a non-trader or a non-UK trader
  • Stock transfers to an unconnected UK trader
  • Stock transfers to an unconnected trader ― ‘just and reasonable’ provisions
  • Stock transfers between connected UK traders
  • Stock transfers between connected UK traders
  • Stock adjustments ― summary
  • Transfers of trading stock within a group

In this guidance note, references to ITTOIA 2005 relate to the rules applicable to individuals and references to CTA 2009 relate to the rules applicable to companies.

Stock adjustments on a cessation or transfer of trade

How stock should be valued on a cessation or transfer of trade is dictated by ITTOIA 2005, s 173 for income tax and CTA 2009, s 162 for corporation tax purposes. If the accounts valuation is different from the statutory valuation, a tax adjustment must be made.

CTA 2009, s 162; ITTOIA 2005, s 173

The valuation of stock depends on the identity of the buyer. The buyer could be:

  • a non-trader or a non-UK trader
  • a UK trader who is not ‘connected’ with the vendor, or
  • a UK trader who is ‘connected’ with the vendor

CTA 2009, ss 164–167; ITTOIA 2005, ss 175–178

Stock transfers to a non-trader or a non-UK trader

If stock on cessation or transfer of trade is being sold to somebody who is not a trader or who is not a UK trader, the stock must be valued for tax purposes at its market value.

HMRC sees this as the last opportunity to tax the stock because once it has left the UK tax net, HMRC is unlikely to get the opportunity to tax the stock again. The stock could be going to a foreign party or it could be going to a UK individual for their own personal consumption. Consequently, HMRC uplifts the price of the stock to its market value at the date of transfer.

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