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HMRC internal manual

Capital Gains Manual

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

Paragraph 1(7) applies where at any time the principal company of a group (the first group) becomes a member of another group (the second group) and the following conditions are met.

  • The shares in the principal company of the first group immediately before that time are owned by the same persons as the shares in the principal company of the enlarged group immediately after that time.
  • The principal company of the enlarged group was not the principal company of any group immediately before that time.
  • Immediately after that time the assets of the principal company of the enlarged group consisted entirely, or almost entirely, of the shares in the principal company of the first group.

In applying the loss set-off restrictions to the companies in the enlarged group, any member of the first group is treated as having joined the enlarged group on the earlier occasion when it became a member of the first 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.