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HMRC internal manual

Capital Gains Manual

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

There is an additional rule dealing with part-disposals, which supplements the conditions in paragraph 1(4)(a) and (b) Schedule 7A. If company B in the relevant group acquires the loss asset from company A, which brought the loss asset into that group, and company B makes a part-disposal of the asset to an unconnected third party, any subsequent disposal of the asset by B no longer meets the condition in paragraph 1(4)(b). This is because, after the asset was brought into the relevant group, it has been the subject of a (part) disposal not protected by the no gain/no loss rule in TCGA92/S171. The final part of paragraph 1(4) Schedule 7A deals with this situation by providing that an asset does not cease to be a pre-entry asset on a disposal not protected by the no gain/no loss rule in Section 171, if the company making the disposal retains any interest in the asset concerned.


In 1994, company LV joins the relevant group M holding an asset (land) with an unrealised loss.

In 1995, LV transfers the land to fellow subsidiary MA in the M group.

In 1996, MA grants a lease to an unconnected third party. There is an allowable loss on the grant of the lease, which for capital gains purposes represents a part-disposal of the freehold.

In 1997, MA sells the freehold at a loss.

The disposals by MA in 1996 (grant of lease) and 1997 (disposal of freehold interest) are both disposals of a pre-entry asset brought into the M group by LV.

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.