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HMRC internal manual

Capital Gains Manual

Restrictions: pre-entry loss: time-apportionment: no gain/loss xfers

As originally enacted, the time-apportionment formula did not work as intended in cases where assets with unrealised losses which had been brought into the group were transferred between members of the group, at no gain/no loss, before the disposal on which the loss arose. Because a no gain/no loss transfer is a disposal, the transferee acquires the asset at the date of transfer; and the relevant allowable expenditure on the asset is treated as incurred at the time of the transfer. So the expenditure on the asset is incurred after the `relevant time’, that is, after the time the asset was brought into the group. In these circumstances, the amount `D’ in the time-apportionment formula, see CG47620, was nil; consequently the pre-entry proportion of the loss was also nil. In these cases, therefore, although the asset is identified as a pre-entry asset, the Schedule 7A restrictions did not apply to any part of the loss.

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.