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HMRC internal manual

Capital Gains Manual

Restrictions: pre-entry loss: time-apportionment: reorganisations

The notional same asset rule in Section 127 applies to the original shares and the new holding each regarded as a single asset. When applying the identification rules for pooled assets to the individual assets in the new holding, it is necessary to identify disposals out of the new holding with individual assets included in the original shares. For this purpose you should allocate the assets in the new holding pro rata to each acquisition of original shares included in the reorganisation.


In 1990, company LV acquires 1,500 shares in company A.

In 1991, LV leaves the L group and joins the M group.

In 1992, LV acquires a further 2,000 shares in A.

In 1993, company B takes over company A. LV receives 7,000 shares in B in exchange for its 3,500 shares in A. TCGA92/S127 applies to the share exchange.

LV’s holding of 7,000 shares in B should be allocated to the acquisition of shares in A in the ratio 1,500:2,000. So 3,000 shares in B are treated as acquired in 1990, at the same cost as the 1990 acquisition of 1,500 shares in A. And 4,000 shares in B are treated as acquired in 1992, at the same cost as the 1992 acquisition of 2,000 shares in A. In relation to the M group, LV’s holding of shares in B consists of 3,000 pre-entry shares and 4,000 post-entry shares.

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.