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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Administration: losses: targeted rules to prevent the contrived creation of capital losses by companies - example 2

In this example the group also consists of companies P Ltd, R Ltd and S Ltd as in the example in CG40252. Again, S Ltd, the investment company, is standing at a loss, but the group does not wish to dispose of its investment which it views as long term. Arrangements are entered into under which S Ltd is disposed of to a bank, thus crystallising the loss. Within a week, S Ltd is reacquired by P Ltd.

The intention (or one of the intentions) of the group is to secure access to the loss it has incurred on its investment in S Ltd, even though there is no intention to divest itself of its investment. Prior to the repeal of TCGA1992/S106 the acquisition of S Ltd by P Ltd would be matched with the disposal a week earlier, with the effect that the loss would not crystallise (see CG51611). In this example the group has not made any real commercial disposal of S Ltd to realise the loss as it was always the intention to reacquire. It thus contravenes the first principle in the HMRC Statement of 5 December 2005 (see CG40240 and Appendix 8).

In this case it is evident that arrangements to reacquire S Ltd were in place given the short time span between disposal and reacquisition. Following the enactment of the FA 2006 amendments to TCGA92/S8 (TCGA92/S16A with effect from 6 December 2006 - see CG40241), any loss accruing to P Ltd on the disposal of S Ltd in pursuance of arrangements would not be an allowable loss.