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HMRC internal manual

Capital Gains Manual

Restrictions: capital losses: identifying pre-entry losses: takeovers

TCGA92/SCH7A/PARA1 (6) & (7)

There is a special rule for the case where one group takes over another group. The general rule in TCGA92/S170 (10), see CG45190, is that if the principal company of one group becomes a member of another group, the two groups are regarded as the same. Paragraph 1(6) Schedule 7A makes clear that, where the principal company of the X group becomes a member of the Y group, the members of the X group are treated as becoming members of the Y group at the time of the takeover for the purposes of Schedule 7A. The alternative interpretation based on Section 170(10), which paragraph 1(6) Schedule 7A prevents, would be that, since the X group and the Y group are treated as the same group, the X group companies are treated as joining the Y group at the time they originally joined the X group. The Schedule 7A rules accordingly restrict the deduction of losses from gains accruing after the takeover, if the losses were realised losses brought into the Y group by the X group, or the losses accrued on the disposal of assets brought into the Y group by the X group. The general effect is that where the Y group acquires company X, and X brings into the Y group its wholly owned subsidiaries XA and XB, the loss restrictions are the same whether or not X is itself the principal company of a group. See also CG47924 concerning mergers of capital gains groups under common control.

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.