A Trumped Up Tax Charge
Our tax system delights in imposing tax charges on occasions where no-one’s received any profits.
In this year’s Budget they are adding another one, which is legislation to give statutory effect to the case law rule in “Sharkey v Wernher” which itself was a fine example of judicial dottiness dating from the 1950’s. The rule said that, if you had something which you held as trading stock (in the case itself it was racehorses), but you take that stock out of the trading business and put it in another business which you own, you have to pay tax as if you had sold the stock for its market value.
More and more tax commentators had been saying, in recent years, that this rule violates not just common sense and accounting practice, but the law as well, as developed in quite a few more recent cases.
Now the Revenue don’t like to see a chance for levying tax slip out of their grasp, and so they’ve quietly introduced this in the 2008 Budget as a statutory rule, which of course will always override common sense, case law etc.
This piece isn’t so much about the Sharkey v Wernher rule, though, as about the reverse situation. Where you hold a fixed asset but you put it into a trading business as stock, a rule which has existed for a very long time treats that as being a “capital gain”. Like many other imaginary gains, this is calculated as if you had sold the asset for market value."
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