Capital loss streaming from 19 July 2011: outline of legislation
From 19 July 2011 TCGA92/SCH7A (the day Finance Act 2001 was passed) applies to restrict the use of capital losses that have accrued before a company joins a group. Such losses may only be set against certain gains.
The legislation is set out in a number of paragraphs that can be summarised as follows:
This says that the rule will apply whenever a company becomes a member of a group with an accrued loss (referred to as a “pre-entry loss”) unless the losses are otherwise restricted by TCGA92/S184A (TAAR2). It provides a special rule for situations where one group of companies is acquired by another, modifying the usual effect of TCGA92/S170(10) for the purposes of the schedule. See CG47420.
This provides an order of set off where there are both restricted and unrestricted losses, or losses affected by different restrictions, available to set against gains. See CG47425.
This sets out those gains from which a restricted loss may be deducted, principally gains on assets owned by the company at the time it joined the group or on assets used for the purposes of a continuing trade or business that the company carried on at that time. The paragraph makes provision for situations such as where more than one company joins a group at the same time. See CG47430-5. It also deals with situations where an asset may lose its identity as a result of “pooling” or merger and allows losses to be set against certain gains that accrue on the disposal of a Qualifying Corporate Bond. See CG47440-5.
This prevents the use of restricted losses against gains on assets used for a continuing trade or business if there is a major change in the nature or conduct of the trade or business. See CG47450.
This applies the schedule where a loss has arisen on the appropriation of an asset to trading stock and an election has been made under TCGA92/S161(3). See CG47455.
This stops losses being restricted where a company joins a group as a result of certain statutory transfers within the public sector. See CG47460.
This stops losses being restricted where a company joins another group as a result of a disposal of shares to which a no gain/no loss disposal rule applies. See CG47465.