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HMRC internal manual

Capital Gains Manual

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

There may be cases where, on a reorganisation, the new holding includes assets of more than one class. It will then be necessary to allocate assets in each class of the new holding to each acquisition of original shares included in the reorganisation. This involves determining the ratio in which assets of each class are attributed to each acquisition, and how the cost of that acquisition should be apportioned between the classes. Any just and reasonable method of allocation can be accepted. It would generally be appropriate to allocate by reference to the respective market values of the assets of each class included in the new holding at the time of the reorganisation. But you should consider on its merits any alternative proposal put forward by the company concerned.


In 1993, company LV acquires 1,000 shares in company A for £10M.

In 1994, LV leaves the L group and joins the M group.

In 1995, LV acquires a further 4,000 shares in company A for £8M.

In 1998, company B takes over company A. LV receives 5,000 shares in B, with a market value £3M, and £1M loan stock with a market value £1M. The total value of the new holding is £4M.

A should be treated as holding

1,000 B shares acquired in 1993 for £7.5M (£10M x 3/4)

£0.2M loan stock acquired in 1993 for £2.5M (£10M x 1/4)

4,000 B shares acquired in 1995 for £6M (£8M x 3/4)

£0.8M loan stock acquired in 1995 for £2M (£8M x 1/4).

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.