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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Restrictions: pre-entry loss: time-apportionment: corporate bonds


There is a special time-apportionment rule relating to capital gains exempt qualifying corporate bonds (QCBs), where the QCBs were acquired on a share exchange or other reorganisation. If on a reorganisation a company issues QCBs in respect of shares, or in respect of securities which were not themselves QCBs, then TCGA92/S116 disapplies the normal paper for paper roll-over rules in TCGA92/S126-TCGA92/S130. For transactions within Section 116, you compute the chargeable gain or allowable loss at the time of the reorganisation. But the gain or loss is deferred, and crystallises for capital gains purposes on a disposal of the QCBs. Detailed instructions on Section 116 are at CG53709+. The time-apportionment rule for QCBs in paragraph 2(8) Schedule 7A deals with the case where a loss accrues on a disposal of QCBs, and the loss relates to assets held before the reorganisation which are pre-entry assets in relation to the group concerned. In this situation, time-apportionment runs up to the date of the reorganisation, not the date of the disposal of the QCBs.


In 1988, LV acquires shares in company A.

In 1990, LV leaves the L group and joins the M group.

In 1993, LV exchanges the shares in company A for QCBs issued by company B. TCGA92/S116 applies. LV’s loss on the shares, computed at the time of the exchange under Section 116(10)(a), is £2M. This loss is deferred, and crystallises on a disposal of the QCBs in 1996.

Time-apportionment runs only to the share exchange in 1993, rather than the disposal of the QCBs in 1996. In the time-apportionment formula D is the period from 1988 (LV acquires shares in A) to 1990 (LV joins M group). E in the time-apportionment formula is the period from 1988 (LV acquires shares in A) to 1993 (disposal of shares in A assumed by Section 116(10)(a)).

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.