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HMRC internal manual

Capital Gains Manual

Restrictions: pre-entry loss: time-apportionment: additional consideration

The rule in paragraph 2(4) Schedule 7A relates additional consideration given on a reorganisation back to the time of the acquisition of the assets held before the reorganisation. This is necessary to prevent a reorganisation having the effect that part of a loss attributable to the pre-entry period is treated by the time-apportionment formula as a post-entry component of the loss.


Company LV joins the M group holding ordinary shares in wholly owned subsidiary X which cost £2M and have a market value £0.1M.

LV subscribes £2M for a rights issue by X of additional ordinary shares. LV disposes of all its ordinary shares in X at their market value £2.1M. There is an overall loss £1.9M.

Paragraph 1(8) Schedule 7A treats the rights issue shares as pre-entry assets. If the rights issue expenditure were treated as incurred on the date LV gave, or became liable to give, the additional consideration £2M, then the effect of the time-apportionment formula would be to treat at least half the overall loss £1.9M as a post-entry loss, even though LV had already suffered the economic loss £1.9M by the time it joined the M group.

Paragraph 2(4) Schedule 7A prevents this result by applying time-apportionment to all the expenditure from the time of the first acquisition of ordinary 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.