Taxation of Chargeable Gains Act 1992 Schedule 7A paragraph 4

Rule to prevent pre-entry losses on pooled assets being treated as post-entry losses

Schedule 7A paragraph 4 prevents companies from circumventing the pre-entry loss rules by holding assets in a share pool, where the pooling mechanism might otherwise disguise the fact that a loss relates to the period before the company joined the group.

• When a company joins a group holding pooled assets (such as shares of the same class in a single company), any unrealised loss embedded in that pool at the date of joining is treated as a pre-entry loss.
• The pre-entry proportion of a pooled holding is calculated by comparing the market value of the pool at the date the company joins the group with the pool's indexed cost at that date — if the market value is lower, the difference is a pre-entry loss.
• On a subsequent disposal from the pool, the pre-entry loss is ring-fenced: it can only be set against gains in the limited circumstances permitted by the wider Schedule 7A rules, not against general group gains.
• If further assets are added to the pool after the company joins the group, only the portion of any overall loss attributable to the original pre-entry element remains restricted — post-entry additions are not tainted.

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