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HMRC internal manual

Capital Gains Manual

Restrictions: pre-entry loss: alternative MV calculation: pooled assets

TCGA92/SCH7A/PARA5 (4) - (6)

Paragraph 5(4)-(6) Schedule 7A sets out additional rules which apply if there is a market value election in respect of a pooled asset. The valuation of a shareholding involves a range of factors including the percentage interest in the company which the shareholding represents. This is significant in the case where, for example, company X joins a group holding a pool of 100 shares in company Y, representing all of Y’s issued share capital, and X later disposes of 10 shares out of the pool. If the effect of a market value election were to treat X as having disposed of 10 shares at the time it brought the 100 shares into the group, the market value of the 10 shares would be considerably less than 10 per cent of the value of 100 shares. This is because the 10 shares on their own represent a small minority holding. To prevent this kind of distortion, the market value rules deem there to be a disposal, at the time of entry into the group, of all the assets in a pool which includes the shares treated as disposed of on the real disposal. The loss is then apportioned by reference to the respective numbers of the pooled assets treated as disposed of on the real disposal and the other assets.

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.