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HMRC internal manual

Capital Gains Manual

Schedule 7AA TCGA 1992: restrictions on capital losses: example

All the transactions take place in the same accounting period.

GV has allowable losses brought forward of £1M.

1 January: GV makes a loss of £2M.

1 March: GV makes a gain of £12M.

1 April: GV dividends all available reserves to its parent under a group election.

1 June: GV, with its subsidiaries GW and GY, joins the group headed by L.

2 June: GV acquires valueless asset p from fellow group member LB.

3 June: GV acquires worthless asset q from GW. GW has held asset q since before 1 January.

4 June: GV submits negligible value claims under Section 24(2) TCGA 1992 in respect of assets p and q. The loss shown on asset p is £7M and the loss on asset q is £3M.

There are no other capital transactions in the accounting period.

GV’s adjusted pre-entry gain is as follows:

Pre-entry gain     12M
Qualifying losses      
  gain period (pre-entry) 2M  
  (post-entry) 3M  
  b/f 1M 6M
Adjusted pre-entry gain     6M
Other gains     Nil
Gains of accounting period     6M

The loss of £7M on asset p is not a qualifying loss and cannot be set against the pre-entry gain. It is therefore available to carry forward to set against gains of later accounting periods subject to the normal rules, including TCGA92/SCH7A.

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.