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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Schedule 7AA TCGA 1992: restrictions on capital losses: pre-entry gains


Schedule 7AA applies to any company in relation to any accounting period in which it has a pre-entry gain (`the gain period’). A company has a pre-entry gain where, within the same accounting period, it realises a chargeable gain and later (on or after 17 March 1998) joins a group.

The rule in Section 170(10) TCGA 1992 which deals with the take over of the principal company of a group is amended for these purposes. The normal rule is that where the principal company of one group becomes a member of another group, the first group and the other group are regarded as the same. However, for the purposes of Schedule 7AA, if the principal company of one group becomes a member of another group, the companies in the first group are treated as joining another group at that time. This means that any pre-entry gains realised by any of the companies in the first group are subject to the restrictions in Schedule 7AA.

FA2000/SCH29/PARA1 amended the definition of a group to remove the condition that group members had be UK resident. For the purposes of TCGA92/SCH7AA these changes have effect from 21 March 2000. Where the accounting period straddles 21 March 2000, FA2000/SCH29/PARA8 provides rules for determining the group which is joined. Before 21 March 2000 the group is the group under the old rules, including the UK residence condition. On or after 21 March 2000 it is the “worldwide” group, defined without reference to the residence condition.

FA2000/SCH29/PARA46 (2) provides that if two or more companies were members of a group under the old provisions immediately before the removal of the residence restriction, and are members of a new group immediately after the removal of that restriction, the old and the new group are treated as the same group. So if:

  • a company with an accrued gain joined a UK group before 21 March 2000, and
  • as a result of the changes in FA2000 was a member of a worldwide group on 21 March 2000 (because the principal company of the UK group was itself a subsidiary of a non-UK-resident company,

then TCGA92/SCH7AA operates to restrict the set off of losses from anywhere in that worldwide group against the gain. The date on which the company joined the worldwide group will be the date on which it joined the UK group.

Note: New rules relating to gain buying were enacted in FA 2006. See CG47320+ for guidance on the rules which apply for accounting periods ending on or after 5 December 2005.