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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Restrictions: capital losses: time-apportionment: pooled assets

TCGA92/SCH7A/PARA3 (3) - (6)

To apply the rules in paragraph 3 Schedule 7A it is necessary to distinguish between the part of the pooled asset which is represented by pre-entry assets, and the part which is not. The part which is not represented by pre-entry assets may comprise

  • assets which have always been held within the group, or were acquired before 1 April 1987;

or

  • assets which were acquired after the relevant time, that is, after the time the pre-entry assets were brought into the group.

The following instructions refer to both these categories, for convenience, as `post-entry assets’.

To the extent that the disposal of a pooled asset, or any part of it, exceeds any part referable to post-entry assets, the disposal is treated as a disposal of pre-entry assets. The individual assets included in a disposal of pre-entry assets are identified, broadly, on a first in/first out basis. And the individual assets disposed of are treated as a notionally separate asset which has never been pooled. This enables the time-apportionment formula to apply to the individual cost elements of the notionally separate asset.

EXAMPLE 1: PART OF POOL DISPOSED OF SMALLER THAN POST-ENTRY ELEMENT

A pool contains 300 shares acquired pre-entry and 500 shares acquired post-entry. There is a disposal of 400 shares out of the pool. The disposal can be wholly accounted for by post-entry shares. No part of the loss is a pre-entry loss, paragraph 3(3)(a) Schedule 7A, though this is subject to paragraph 4(2) Schedule 7A, see CG47688. After the disposal, the pool contains 300 pre-entry shares and 100 post-entry shares, paragraph 3(3)(b) Schedule 7A.

EXAMPLE 2: PART OF POOL DISPOSED OF GREATER THAN POST-ENTRY ELEMENT

A pool contains 500 shares acquired pre-entry and 400 shares acquired post-entry. There is a disposal of 700 shares out of the pool. The disposal is a disposal of pre-entry shares to the extent of the excess (300) of the shares disposed of (700) over the post-entry element (400). For the purposes of the time- apportionment formula the excess, 300 shares, is treated as a notionally separate asset. And the shares included in the notionally separate asset are treated as having never been pooled with any other assets. After the disposal of 700 shares, the pool is treated as containing 200 pre-entry shares, paragraph 3(4) and (6) Schedule 7A.

EXAMPLE 3: DISPOSAL OF ENTIRE POOL CONTAINING PRE-ENTRY AND POST-ENTRY ELEMENTS

A pool contains 200 shares acquired pre-entry and 100 shares acquired post-entry. There is a disposal of the entire pool. The 200 pre-entry shares are treated as a notionally separate asset comprising assets which have never been pooled with other assets, paragraph 3(5) and (6) Schedule 7A.

EXAMPLE 4: PART DISPOSAL OF POOL CONTAINING ONLY PRE-ENTRY ASSET

A pool contains 300 shares acquired pre-entry in 1993 and 200 shares acquired pre-entry in 1995. There is a post-entry disposal of 400 shares in 1997. The 400 shares disposed of are treated as a notionally separate asset comprising assets which have never been pooled with other assets, paragraph 3(5) and (6) Schedule 7A. The shares included in the notionally separate asset are the 300 shares acquired in 1993, together with 100 of the 200 shares acquired in 1995. This is the result of the identification rules in paragraph 3(7) Schedule 7A, see CG47646.

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.