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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Restrictions on setting off capital losses: privatisations

If as part of a privatisation scheme there is a transfer of shares or securities, and the result is that a company joins a new group, losses which accrued on disposals before the company joined the new group are not pre-entry losses in relation to that group, paragraph 1(3)(a) Schedule 7A. In addition an asset is not a pre-entry asset if the only reason for so treating it is that it was brought into the new group on privatisation, paragraph 1(3)(b) Schedule 7A.

EXAMPLE 1: TRANSFER OF BENEFIT OF REALISED LOSSES

The tax provisions applying to a statutory privatisation scheme treat allowable losses of nationalised company X as allowable losses of privatised company BY, which is a member of the B group. The allowable losses are not pre-entry losses in relation to the B group.

EXAMPLE 2: COMPANIES JOINING NEW GROUP ON PRIVATISATION

In a statutory privatisation scheme all the shares in a nationalised company AX are transferred to a private sector company BZ in the B group. AX has a wholly owned subsidiary AY.

Any losses realised by AX or AY before they joined the B group are not pre-entry losses in relation to the B group.

Any assets held by AX or AY when they joined the B group are not pre-entry assets by reference to that event.

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.