Restrictions: pre-entry loss: time-apportionment
Paragraph 2(8A) Schedule 7A adjusts the time-apportionment formula for assets which can be traced back through an unbroken sequence of no gain/no loss disposals to 31 March 1982. Under TCGA92/S55 (7) - (9), amounts which had been incorporated in cost under TCGA92/S56 (2) on no gain/no loss transfers prior to 30 November 1993, but which were later removed by TCGA92/S55 (6)(b), may create or increase a loss, see CG17760+. These amounts are referred to as `rolled-up indexation’. For the purpose of the time-apportionment formula, you should
- increase the total amount of all the relevant allowable expenditure, C, by the amount of the rolled-up indexation,
- increase each item of relevant allowable expenditure, B, by so much of the rolled-up indexation as relates to that item.
This example is based on the example at CG47623. 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 1990, the asset is transferred at no gain/no loss to A’s subsidiary, B.
In 1991, A and B join the relevant group.
In 1992, B incurs expenditure £1M on the same asset.
In 1995, B transfers the asset at no gain/no loss to X.
In 1998, X disposes of the asset for £4M.
The allowable loss on the disposal would be £13M, as in CG47623, but is increased by the rolled-up indexation which will have been included in B’s acquisition cost of the asset on the no gain/no loss transfer on 1 January 1990, see CG17760+. The loss cannot, however, be increased by any amounts in respect of the no gain/no loss transfer on 1 January 1995.
The amount of rolled-up indexation will be:
|in respect of the expenditure in 1980,||£10M||x||0.504||5.040|
|in respect of the expenditure in 1989,||£6M||x||0.077||0.462|
|Total rolled-up indexation||5.502|
The total allowable loss will therefore be £13M + £5.502M = £18.502M.
The pre-entry proportion of the allowable loss is the total which results from applying time-apportionment to each tranche of expenditure. The total of rolled-up indexation, £5.502M, is added to the total of all the relevant allowable expenditure, C, and the individual items of relevant allowable expenditure are increased by the amount of rolled-up indexation relating to them, as follows:
|18.502||x||10 + 5.040||x||8.75||=||6.870|
|17 + 5.502||15.75||=|
|18.502||x||6 + 0.462||x||2||=||1.105|
|17 + 5.502||x||9||=|
|pre-entry proportion of allowable loss||7.975|
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.