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HMRC internal manual

Capital Gains Manual

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Restrictions: identifying pre-entry losses: changing groups

TCGA92/SCH7A/PARA12

A company may leave one group and join another on a disposal of shares or securities which is a no gain/no loss disposal for capital gains purposes. In these circumstances, the Schedule 7A provisions apply to losses accrued before the change of group, and to assets held at the time of the change, as if any period of membership of the old group were included in the period of membership of the new group. This rule applies both where the disposal of shares or securities is a disposal of shares in, or securities of, the company changing group or some other company (for example, its parent). The no gain/no loss disposals to which the provisions apply are listed in TCGA92/S35 (3)(d).

These include in particular TCGA92/S139 dealing with company reconstructions and amalgamations.

EXAMPLE

Company A has subsidiary AX which has subsidiary AY. In a scheme of reconstruction A transfers AX to company B, which is not a member of the A group, at no gain/no loss under TCGA92/S139. AX and AY both leave the A group and join the B group. The period for which AX was a member of the A group is treated as a period when it was a member of the B group. Similarly the period for which AY was a member of the A group is treated as a period when it was a member of the B 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.