CG47001 - Restrictions: capital losses: introduction: general

Before FA93, it was possible for groups to exploit the no gain/no loss rule and effectively buy capital losses from other groups, without any restriction on how the losses could be used.

EXAMPLE 1: PURCHASE OF REALISED LOSS

Group M has a subsidiary MA which will shortly sell an asset and realise a chargeable gain £10M. A wholly unrelated group L has a subsidiary LV with a realised allowable loss £10M which group L cannot use. Group L sells the loss vehicle LV to the M group for £1M. MA transfers the gain asset to LV at no gain/no loss. LV sells the gain asset to an unconnected third party, and realises the chargeable gain £10M. This gain is sheltered by LV's loss £10M.

In this way the M group has obtained the benefit of a capital loss which accrued on a disposal by a different group altogether.

EXAMPLE 2: PURCHASE OF UNREALISED LOSS

Group M has a subsidiary MA which will shortly sell an asset and realise a chargeable gain £15M. An unrelated group L has a subsidiary LV, and LV holds a valueless asset with an unrealised loss £15M. Group L sells the loss vehicle LV to the M group for £1.5M. LV transfers the loss asset at no gain/no loss to MA. Company MA sells the gain asset to an unconnected third party, realising the chargeable gain £15M, and makes a negligible value claim under TCGA92/S24 (2) in respect of the loss asset, realising an allowable loss £15M.

The M group has obtained the benefit of a capital loss attributable to the reduction in value of the loss asset at a time when it was owned by a different group altogether.