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HMRC internal manual

Capital Gains Manual

Targeted anti-loss buying rule - example 3

It is not intended that ordinary merger and acquisition activity will be affected by the existence of TCGA92/S184 A to F in any way. For example, a company with an ongoing trade is acquired by A group from B group. The company that has changed hands has capital losses brought forward which, say, arose in 1998 on the disposal of its interest in a failed joint venture. If, for example, it is clear that A group has made the acquisition because the trade fits well with other businesses already owned and that the Directors of A group believe that its profitability can be improved, the FA 2006 changes will not operate to disallow the capital losses, and those losses will be subject to the rules in TCGA92/SCH7A as normal. In these circumstances TCGA92/S184A to F will not apply as the change of ownership does not occur directly or indirectly in consequence of arrangements the main purpose, or one of the main purposes, of which is to secure a tax advantage.

However, it may be the case that the existence of the capital losses is a material factor in the acquisition, even though there is a genuine acquisition of a trade as well, and that particular steps have been introduced to the arrangements in order to prevent the application of TCGA92/SCH7A. In these circumstances securing a tax advantage could be one of the main purposes of the arrangements, in which case access to the losses will be restricted.