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HMRC internal manual

Capital Gains Manual

Capital loss streaming from 19 July 2011: public sector transfers


There are special rules in TCGA92/SCH7A/PARA11 dealing with certain situations where a company joins a group as a result of transfer brought about by legislation. In broad terms, there is no restriction on accrued losses that are transferred from one person to another on a public sector restructuring.

The provisions of TCGA92/SCH7A/PARA11 apply where a statutory scheme transfers assets and liabilities to any person from a statutory public sector body, a subsidiary of such a body, or a company wholly owned by the Crown, TCGA92/SCH7A/PARA11(1), (4) and (5).

If an allowable loss, that accrued to a company transferring assets and liabilities in a transfer scheme, is treated as an allowable capital loss of the transferee company, the loss is not a pre-entry loss of the transferee for the purposes of TCGA92/SCH7A/PARA11(2). The capital gains code generally does not permit one company to benefit from another company’s realised losses but the tax provisions in certain statutory transfer schemes may have this effect.

If as part of a statutory transfer scheme there is a transfer of shares or securities, and the result is that a company joins a new group, losses which accrued on disposals before the company joined the new group are not pre-entry losses in relation to that group.

Example 1: Transfer of benefit of realised losses

The tax provisions applying to a statutory transfer scheme treat allowable losses of public sector company X as allowable losses of privatised company Y, which is a member of the B group. The allowable losses are not pre-entry losses in relation to the B group.

Example 2: Companies joining new group as a result of a public sector transfer

In a statutory transfer scheme all the shares in a government owned company AX are transferred to a private sector company BZ in the B group. AX has a wholly owned subsidiary AY.

Any losses accruing to AX or AY before they joined the B group are not pre-entry losses in relation to the B group.

Note: Additional rules relating to loss buying were enacted in FA 2006. See CG47020+ for guidance on the rules which apply in priority to TCGA92/SCH7A for accounting periods ending on or after 5 December 2005.