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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: additional consideration

TCGA92/SCH7A/PARA2 (4)

There is a special rule in paragraph 2(4) Schedule 7A for cases where additional consideration is provided on a reorganisation, for example a rights issue. Where any asset (the second asset) is treated by TCGA92/S127 as the same as another asset (the first asset) previously held by any company, the Schedule 7A rules apply.

  • as if the consideration given for the acquisition of the second asset had been incurred at the same time as the consideration for the acquisition of the first asset
  • where there is more than one such time, as if the consideration for the acquisition of the second asset had been incurred at those different times in the same proportions as the consideration for the acquisition of the first asset.

EXAMPLE

In 1990, company LV acquires 0.2M shares in company A for £3M.

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

In 1995, LV acquires a further 0.3M shares in company A for £1.5M.

In 1998, A makes a rights issue on a 1:5 basis at £6 per share. LV acquires 0.1M rights issue shares for £0.6M.

For time-apportionment purposes, LV’s total holding of 0.6M shares is treated as acquired

0.24M shares in 1990 for £3.4M

0.36M shares in 1995 for £1.7M

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.