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HMRC internal manual

Capital Gains Manual

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

For disposals on or after 30 November 1993, the extent to which indexation allowance can create or increase a loss is subject to restrictions, see CG17700+. The example below shows how the above computation would change if the disposal of the asset were in January 1994, rather than January 1993.

EXAMPLE

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 1994, the company disposes of the asset for £4M.

The allowable loss on the disposal is £13M computed as follows.

  Expenditure (£M) indexation  
to 1994 (£M) Total (£M)    
       
incurred 1980 10 nil 10
incurred 1989 6 nil 6
incurred 1992 1 nil 1
      17
  disposal proceeds   4
  allowable loss   (13)

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

13 x 10   8.75 = 5.695
             
    17 x 11.75    
13 x 6   2 = 1.835
    17 x 5    
13 x 1     =  
    17 x 2    
pre-entry proportion of allowable loss 7.530          

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.