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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Groups to which loss set-off restrictions apply: special cases

The provisions of paragraph 7 Schedule 7A generally permit a loss to be set off against a gain if the loss or the loss asset, and the gain asset, are brought into the relevant group by the same company, or by associated companies joining the relevant group at the same time. In the absence of special rules, it would be possible to side-step the loss set-off restrictions by creating and manipulating separate capital gains groups under common control. The artificial manipulation of group relationships would in many cases be inhibited by the charge on companies leaving groups in TCGA92/S178 and TCGA92/S179, see CG45400+. But these provisions may not apply, for example because the underlying asset was acquired from outside the group, or because of the six year time limit. The following types of case illustrate the practical concerns.

  • A group parent artificially degroups the company with the gain asset, using the devices described in CG47926, and then brings together the gain company and the loss company in a separate capital gains group which it controls. The company controlling the main capital gains group then arranges for the loss company and the gain company to rejoin the main group from the separate group. In the absence of further rules it would be possible to contrive situations where loss set-off is permitted within the terms of paragraph 7 Schedule 7A, but which essentially represent artificial capital loss buying.
  • The loss company joins a capital gains group. The company with the loss asset and the company with the gain asset are artificially degrouped into a separate group controlled by the main group. The company controlling the main capital gains group then arranges for the gain to be crystallised in the separate group. The separate group would be a relevant group for the purposes of the loss set-off restrictions, but the loss asset and the gain asset have been brought into the relevant group from the main group at the same time. Here again, in the absence of further rules, it would be possible to contrive artificial capital loss buying cases protected by the paragraph 7 Schedule 7A rules from any effective restriction.

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.