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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Administration: losses: targeted rules to prevent the contrived creation of capital losses by companies - general

The intent of this Targeted anti-avoidance rule (“TAAR”) is to apply thefirst of the principles set out in the HMRC statement of 5 December 2005, that relief forcapital losses should only be available where a group or company has suffered a genuinecommercial loss and made a real commercial disposal. This principle is neither new norstartling. Indeed, judicial support for such an approach can be found as far back as 1978:

“The capital gains tax is of comparatively recent origin. The legislation imposing it, mainly the Finance Act 1965, is necessarily complicated, and the detailed provisions, as they affect this or any other case, must of course be looked at with care. But a guiding principle must underlie any interpretation of the Act, namely, that its purpose is to tax capital gains and to make allowance for capital losses, each of which ought to be arrived at upon normal business principles. No doubt anomalies may occur, but in straightforward situations, such as this, the courts should hesitate before accepting results which are paradoxical and contrary to business sense. To paraphrase a famous cliché, the capital gains tax is a tax upon gains: it is not a tax upon arithmetical differences.” (Lord Wilberforce in Aberdeen Construction Group Ltd v CIR, 58 TC 281, 1978)