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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Gains from which pre-entry losses are deductible: pre-entry assets

TCGA92/SCH7A/PARA7 (2) (c) & (3)

The extension of the loss set-off rules in paragraph 7(3) Schedule 7A covers the case where two or more companies leave one group and join another group at the same time. If a company (the initial company) brings an asset into a group, and an allowable loss on a later disposal of that asset by the initial company has a pre-entry proportion, the pre-entry loss can be deducted from a gain accruing to the initial company provided the following conditions are satisfied.

  • The gain asset was acquired by one of the joining companies other than the initial company from a person who was not a group member at the time of acquisition.
  • Since the acquisition of the asset from outside the group, the asset has been used or held exclusively for the purposes of a trade which the initial company carried on before it became a member of the group, and which it continued to carry on until the disposal.

There are supplemental rules dealing with changes in the nature or scale of a trade, see CG47840+.

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.