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HMRC internal manual

Capital Gains Manual

Administration: losses: targeted rules to prevent the contrived creation of capital losses by companies - the tiering effect

One consequence of the capital gains regime as it applies to groups of companies is thatcapital losses incurred in a subsidiary company may be reflected in a fall in the value ofany parent company. Disposals of companies higher up the group can therefore lead to therecognition of further losses from the original loss making event; a feature known as‘tiering’. Where the original loss results from a genuine commercial loss on agenuine disposal, such that the legislation in TCGA92/S8 as amended by FA 2006(TCGA92/S16A with effect from 6 December 2006 – see CG40241) does not apply, then tothe extent that other losses are realised through the tiering effect, the same principlewill apply. Conversely, if the original loss resulted from arrangements to which thelegislation does apply, then subsequent losses through tiering will not be allowablelosses.