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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Restrictions: capital losses: identifying pre-entry losses: disposals


There may be cases where a company brings an asset into a group, there is a later disposal of the entire asset crystallising a gain or loss, and there is subsequently a loss on a further disposal of the same asset by a company within the same group. The loss set-off restrictions do not apply on this further disposal. This is the result of paragraph 1(4) Schedule 7A. An asset is not a pre-entry asset if

  • the company which brought the asset into the relevant group is not the company which makes the disposal, and
  • since the asset came into the relevant group it has been disposed of on a disposal to which the no gain/no loss rule in TCGA92/S171 did not apply.


In 1992, group L sells loss vehicle LV to group M. On joining the M group, LV holds asset X. In 1993, LV transfers asset X to a fellow subsidiary MA in the M group on a disposal to which the no gain/no loss rule does not apply (say, because MA is a dual resident investing company, see CG45336). The 1993 disposal from LV to MA is a disposal to a connected person, not protected by the no gain/no loss rule. So there is a 1993 chargeable gain or allowable loss by reference to the market value of the asset in 1993. If there is an allowable loss, the Schedule 7A provisions apply to it.

If, in 1995, MA disposes of the asset outside the group, Schedule 7A does not apply to any loss on that disposal. This is because, in relation to the 1995 disposal, paragraph 1(4) Schedule 7A prevents asset X being treated as a pre-entry asset. There is no reason in principle to apply the loss set-off restrictions on the 1995 disposal. Any loss at that stage is attributable to a reduction in the asset’s value in the period 1993-1995, throughout which the asset has been held by a member of the relevant 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.

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.