I have a client who wishes to gift his sole trade business to his son.  No consideration will be paid by the son.  What is the position with the trading stock?  Will this trigger a tax charge?


If a person permanently ceases to carry on a trade, in calculating the profits of the trade the trading stock belonging to the trade at the time of the cessation must be valued.
The value of the trading stock, where it is gifted to a connected person who is intending to carry on the trade in the United Kingdom is taken as the amount which would have beenrealised if the sale had been between independent persons dealing at arm’s length.
An election can be made between connected persons if the value of the stock determined exceeds both:

  1. the acquisition value, and
  2. the amount in fact realised on the sale.

If the election is made, the value is taken to be:

  1. its acquisition value, or,
  2. if greater, the amount in fact realised on the sale.

In this situation, where the father is gifting to the son for nil consideration they can elect such that the stock is transferred at its acquisition value.
The legislation covering this is within ITTOIA 2005 s177 and s178.

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