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CG47681 | Restrictions: pre-entry loss: anti-flooding rule for pooled assets

From HM Revenue & Customs · Capital Gains Manual

TCGA92/SCH7A/PARA4 (1)

The rules which prevent this result are in paragraph 4 Schedule 7A. Paragraph 4 applies where the following conditions are satisfied.

  • There is a disposal out of a pool which includes pre-entry assets.

  • The disposal is wholly or partly a disposal of post-entry assets.

  • There is a loss on the disposal (the actual loss).

  • The relevant allowable expenditure allowed as a deduction, see CG47682, in computing the allowable loss exceeds the relevant allowable expenditure attributable to the post-entry element of the disposal, see CG47684.

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.

Where there has been a reorganisation of share capital, it is necessary to take account of the rule in TCGA92/S127 which treats the new holding as the same asset as the original shares. In operating the FIFO rule, paragraph 4(11) Schedule 7A applies the paragraph 3(10) Schedule 7A rule equating post-reorganisation assets with pre-reorganisation assets. And where a reorganisation follows a series of acquisitions and disposals, the FIFO rule identifies the individual assets involved in the reorganisation.

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.

The method of computing the pre-entry loss depends on whether all the assets disposed of are post-entry assets, see CG47688, or whether the disposal is of both pre-entry and post-entry assets, see CG47689.

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.