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HMRC internal manual

Capital Gains Manual

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

GV has a holding of shares in X plc and the events shown below take place in a single accounting period.

1 January: GV holds 150 X plc shares at a cost of £15,000.

1 February: GV realises a gain on a factory.

1 April: GV joins the L group.

1 May: GV acquires 200 X plc shares from LB, a fellow member of the L group - acquisition cost £13,000.

1 June: GV disposes of 100 X plc shares for £7,500.

15 June: GV disposes of 75 X plc shares for £5,100.

The computations in respect of the disposals on 1 and 15 June are as follows.

1 June Disposal proceeds       7,500
less Cost 100/350 x 28,000 8,000
Allowable loss       (500)
15 June Disposal proceeds       5,100
less Cost 72/250 x 20,000 6,000
Allowable loss       (900)

This is a gain period for GV (it made a gain on 1 February), it is therefore necessary to compute the notional net pre-entry loss to determine how much, if any, of the above losses are qualifying losses available to set against the pre-entry gain.

The pool of pre-entry securities consists of the 150 X plc shares held at the time GV joined the L group on 1 April. The post-entry disposals can be matched against this pool of pre-entry securities to the following extent.

1 June: 100/100

15 June: 50/75.

The losses on these disposals when matched in this way would have been

1 June Disposal proceeds       7,500
less Cost 100/150 X 15,000 10,000
loss       (2,500)
15 June Disposal proceeds 50/75 x 5,100 3,400
less Cost       5,000
loss       (1,600)

The figure of notional net pre-entry loss is therefore £4,100. The allowable losses of £500 and £900 on the 1 and 15 June disposals can both be set in full against the notional net pre-entry loss without exhausting it. The allowable losses of £1,400 are, therefore, available as qualifying losses to set against the gain realised on 1 February.


The unused portion of the notional net pre-entry loss has no further significance. Any allowable losses on disposals in later accounting periods from the pool of X plc shares will be available for set off in accordance with the normal rules.

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.