Taxation of Chargeable Gains Act 1992 Schedule 7A paragraph 2

Pre-entry proportion of losses on pre-entry assets

Schedule 7A paragraph 2 explains how to calculate the portion of a capital loss that is treated as a "pre-entry loss" when a company disposes of an asset it already held before joining a group of companies.

• When a company joins a group holding an asset that has already fallen in value, any loss on a later disposal must be split between the pre-entry and post-entry periods.
• The pre-entry proportion of the loss is based on the difference between the asset's original cost and its market value at the time the company joined the group, compared with the total loss on disposal.
• The pre-entry part of the loss is restricted — it cannot be set against gains arising on assets that were not themselves pre-entry assets, thereby preventing groups from acquiring companies simply to use their built-in losses.
• If the asset had already risen in value by the date the company joined the group, none of the eventual loss is treated as a pre-entry loss; conversely, if the entire loss had already accrued by that date, the whole loss is a pre-entry loss.

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