Restrictions: capital losses: identifying pre-entry losses
TCGA92/SCH7A/PARA1 (1) - (3)
The provisions apply to the pre-entry losses of a company which is or has been a member of a group (‘the relevant group’, see CG47561). There are two categories of pre-entry loss: losses realised before entry into the group, and the pre-entry proportion of losses realised after entry into the group on disposals of assets held at the time of entry.
LOSSES REALISED BEFORE ENTRY INTO RELEVANT GROUP
- Pre-entry losses include any allowable loss which accrued to the company before it became a member of the relevant group. There are special rules applying to losses accruing on the disposal of qualifying corporate bonds following share reorganisations, see CG47573, and to insurance companies, see CG47574.
LOSSES REALISED AFTER ENTRY INTO RELEVANT GROUP
- Pre-entry losses also include the pre-entry proportion of any allowable loss accruing to the company on the disposal of a `pre-entry asset’, see CG47562.
- From 21 March 2000, pre-entry losses can also include a proportion of a loss on an asset brought within the charge to corporation tax on chargeable gains by a group member company which is not resident in the UK. (This counters exploitation of the FA2000/SCH29/PARA1 change of the group definition to include non-residents, by preventing a non-resident member of the group from bringing an asset with a latent loss into the scope of the UK change to corporation tax, then crystallising the loss within the UK charge and setting it off against other gains. The objection to such loss importation is that the loss will have built up over a period when any gain on a disposal of the asset would not have been chargeable to corporation tax.)
There are detailed rules in paragraphs 2-5 Schedule 7A for computing the pre-entry proportion of a loss which accrued to a company on the disposal of a pre-entry asset. These are covered at CG47600+.
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.
FA11/S46 and FA11/SCH11 greatly simplified the rules in TCGA92/SCH7A for the deduction of losses on or after 19 July 2011. See CG47400+ for guidance on loss streaming from that date.