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HMRC internal manual

Capital Gains Manual

Restrictions: pre-entry loss: time-apportionment: allowable expenditure

In relation to disposals before 30 November 1993, you should add to the amounts B and C in the time-apportionment formula the indexed rises in the items of relevant allowable expenditure. Indexed rises are calculated in accordance with TCGA92/S54, see CG17270+.


All events take place on 1 January in the year referred to.

In 1980, a company acquires an asset for £10M.

In 1989, the company incurs expenditure £6M on the same asset.

In 1991, the company holding the asset joins the relevant group.

In 1992, the company incurs expenditure £1M on the same asset.

In 1993, the company disposes of the asset for £4M.

The allowable loss on the disposal is £21.829M computed as follows. (Note 1).

  expenditure £M Indexation  
to 1993 £M total £M    
incurred 1980 10 7.360 17.360
incurred 1989 6 1.452 7.452
incurred 1992 1 0.017 1.017
  Disposal proceeds   4.000
  Allowable loss   (21.829)

The pre-entry proportion of the allowable loss is the total which results from applying time-apportionment to each tranche of expenditure.

21.829 x 17.360 x 8.75 (Note 2) = 11.942
    25.829   10.75      
21.829 x 7.452 x 2   = 3.149
    25.829   4      
21.829 x 1.017 x   (Note 3) = nil
    25.829   1      
pre-entry proportion of allowable loss 15.091            

Note 1

It is to be assumed that in this example there is no rebasing election under TCGA92/S35 (5), and that TCGA92/S35 (2) does not apply to substitute market value of the asset at 1 April 1982, because of TCGA92/S35 (3). In any case where TCGA92/S35 (2) does apply, the computation would proceed using 31 March 1982 value instead of original cost of the affected tranche, or tranches, of expenditure.

It is also assumed that TCGA92/S55 (1) does not apply to the computation of indexation, because of TCGA92/S55 (2).

Note 2

Time-apportionment does not take account of periods before 1 April 1982, paragraph 2(3) Schedule 7A.

Note 3

For any tranche of expenditure incurred after the asset was brought into the relevant group D in the time-apportionment formula is nil, paragraph 2(2) Schedule 7A.

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.