Taxation of Chargeable Gains Act 1992 Schedule 7A paragraph 1

Application and construction of Schedule

Schedule 7A paragraph 1 sets out when restrictions apply to the use of capital losses that a company brings with it when it joins a group of companies, defines what a "pre-entry loss" is, and establishes special rules for determining when group members are treated as joining a new group following a takeover.

• When a company joins a group carrying allowable losses that arose before it joined (known as "pre-entry losses"), Schedule 7A restricts how those losses can be used — but the Schedule does not apply if the targeted anti-avoidance rule in section 184A already catches those losses.
• Where one group is taken over by another, the members of the acquired group are generally treated as joining a new group at the takeover date, so their existing losses become restricted pre-entry losses — even though the two groups may technically be regarded as the same group under the normal rules in section 170(10).
• An exception to this takeover rule exists where a new, "clean" holding company is simply inserted at the top of an existing group — that is, the shareholders remain the same, the new company was not previously heading any group, and its only assets immediately after the insertion are essentially the shares in the former parent company.
• Special timing rules apply for losses arising on qualifying corporate bond conversions (section 116) and deemed disposals by insurance companies (section 212), to ensure the correct date is used when determining whether a loss is a pre-entry loss.