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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: pooled assets


TCGA92/SCH7AA/PARA5 deals with losses arising on disposals of pooled assets after the relevant company (the company with a pre-entry gain) has joined a group. It contains rules for determining the extent to which such losses are qualifying losses and can be set against pre-entry gains.

Paragraph 5 Schedule 7AA covers any holding of securities which is treated as a single asset by any of the pooling provisions in Chapter 1 of Part IV TCGA 1992 (Sections 104-125). `Securities’ for these purposes are as defined in TCGA92/S104(3) and include shares and other fungible assets.

In practice, however, you will only need to apply the detailed rules of paragraph 5 Schedule 7AA if the pooled asset is added to at any time after the first or only occasion in the gain period on which the relevant company joins a group. If there are no such additions, then all losses on disposals from the pool will be qualifying losses.

The purpose of paragraph 5 is to prevent post-entry additions to a pooled asset from creating qualifying losses which would be available to set against a pre-entry gain. This would happen without a special rule because the pooled asset is regarded as a single asset and that asset was owned by the relevant company at the time it joined the group. Paragraph 5 applies where the relevant company holds a pooled asset at the time it joins a group and it makes losses on a disposal or disposals from the pool at or after that time. In broad terms, paragraph 5 works by freezing the asset pool at the time of entry into the group, matching post-entry disposals against that frozen pool until it is exhausted to compute a figure of notional losses, matching allowable losses against these notional losses until the notional losses are exhausted, and treating any allowable losses which can be matched in this way as qualifying losses. It achieves this in the following way.

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.