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HMRC internal manual

Capital Gains Manual

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

In a case where there have been multiple acquisitions and disposals of assets which constitute the original shares for the purposes of Section 127, and one or more of the acquisitions took place before entry into the relevant group, it is necessary to identify the shares included in the new holding which are treated as the same asset as the shares acquired before entry. This is because, for time-apportionment purposes, you have to relate acquisition dates and costs in respect of the original shares to the assets included in the new holding. Paragraph 3(10) Schedule 7A applies the identification rules in paragraph 3(7) to establish which acquisitions represent the original shares involved in the reorganisation.

EXAMPLE

Company LV makes the following acquisitions and disposals of shares in company A

1990 acquisition 2,000 shares

1991 acquisition 1,000 shares

1992 disposal 1,800 shares.

In 1993, LV leaves the L group and joins the M group.

In 1994, company A is taken over by company B. LV receives 2,400 shares in B in exchange for its remaining 1,200 shares in A.

In 1995, LV disposes of 1,500 shares in B at a loss.

The result of paragraph 3(7)(a) and (10) Schedule 7A is that LV’s 1992 disposal of 1,800 shares in A is identified with 1,800 out of the 2,000 shares acquired in 1990. So the 1,200 shares held by LV immediately before the reorganisation are 200 shares acquired in 1990, and 1,000 shares acquired in 1991. The 2,400 shares in B are identified pro rata with the 1990 acquisition of 200 shares, and the 1991 acquisition of 1,000 shares. See CG47662.

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.