Finance Act, 2001

Amendment of section 89 (valuation of trading stock at discontinuance of trade) of Principal Act.

42.—(1) Section 89 of the Principal Act is amended—

(a) by the substitution in subsection (1) for paragraph (b) of the following:

“(b) For the purposes of this section—

(i) ‘trading stock’, in relation to a trade, includes any services, article or material which, if the trade were a profession, would be treated as work in progress of the profession for the purposes of section 90, and references to the sale or transfer of trading stock shall be construed accordingly;

(ii) two persons are connected with each other if—

(I) they are connected with each other within the meaning of section 10;

(II) one of them is a partnership and the other has a right to a share in the partnership;

(III) one of them is a body corporate and the other has control over that body;

(IV) both of them are partnerships and some other person has a right to a share in each of them; or

(V) both of them are bodies corporate or one of them is a partnership and the other is a body corporate and, in either case, some other person has control over both of them;

and in this subparagraph the references to a right to a share in a partnership are references to a share of the assets or income of the partnership and control has the meaning given by section 11.”,

(b) by the substitution in subsection (2)(a) for “the price paid for such trading stock on such sale or the value of the consideration given for such trading stock on such transfer, as the case may be” of “the amount determined in accordance with subsections (3) and (4)”, and

(c) by the insertion of the following after subsection (2):

“(3) Subject to subsection (4), paragraph 2(2) of Schedule 16 and paragraph 4(2) of Schedule 17, the value of any trading stock falling to be valued under subsection (2)(a) shall be taken—

(a) except where the person to whom it is sold or transferred is connected with the person who makes the sale or transfer, to be the amount (in this subsection and subsection (4) referred to as ‘the price actually received for it’) realised on the sale or, as the case may be, which is in fact the value of the consideration given for the transfer, and

(b) if those persons are connected with each other, to be what would have been the price actually received for it had the sale or transfer been a transaction between independent persons dealing at arm's length.

(4) If—

(a) trading stock is sold or transferred to a person in circumstances where subsection (3)(b) would, apart from this subsection, apply for determining the value of stock so sold or transferred,

(b) the amount which would be taken in accordance with subsection (3)(b) to be the value of the stock sold or transferred to that person is more than the acquisition value of that stock and also more than the price actually received for it, and

(c) the person by whom the stock is sold or transferred includes in a return required to be delivered under section 951 for the chargeable period in which the trade is discontinued an election signed by both parties to the sale or transfer that this subsection shall apply,

then the stock so sold or transferred shall be taken to have a value equal to whichever is the greater (taking all the stock so sold or transferred together) of its acquisition value and the price actually received for it or, in a case where they are the same, to either of them.

(5) In subsection (4) ‘acquisition value’, in relation to any trading stock, means the amount which, in computing for any tax purposes the profits or gains of the discontinued trade, would have been deductible as representing the purchase price of that stock if—

(a) the stock had, immediately before the discontinuance, been sold in the course of the trade for a price equal to whatever would be its value in accordance with subsection (3)(b), and

(b) the period for which those profits or gains were to be computed began immediately before the sale.

(6) Where any trading stock falls to be valued under subsection (2)(a), the amount determined in accordance with subsections (3) and (4) to be the amount to be brought into account as the value of that stock in computing profits or gains of the discontinued trade shall also be taken, for the purpose of making any deduction in computing the profits or gains of any trade carried on by the purchaser, to be the cost of that stock to the purchaser.”.

(2) This section applies from 6 December 2000.