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HMRC internal manual

Capital Gains Manual

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

Paragraph 1(7) Schedule 7A gives an exception to the rule in paragraph 1(6) Schedule 7A. The exception deals with the case where a new company is introduced as the principal company of an existing group on a company reconstruction. If newco Y, with no assets other than a nominal amount of subscribers’ funds, acquires the principal company X of the X group, and the shareholders in Y are the same as the previous shareholders in X, there is no reason in principle to apply the set-off loss restrictions by reference to the time Y acquired X. Rather they should apply to the earlier times when the members of the X group originally joined the X group. So if a new company acquires the principal company of a group, and the conditions in paragraph 1(7) Schedule 7A are satisfied, the time of group entry for any company in the old group is the time it joined the old group, and not the time of the reconstruction.

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.