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Overview of pre-entry loss restrictions

When a group company realises a capital gain, the gain can be transferred to another company in the group with capital losses (under TCGA 1992, s 171A) in order to reduce the resultant corporation tax liability. Anti-avoidance rules are in place that prevent a profitable company from deliberately buying another company outside of the group in order to use its capital losses.

There are two key regimes which apply restrictions in this area:

1. •

   the anti-loss buying rules

2. •

   the loss streaming rules

TCGA 1992, s 184A, Sch 7A

The anti-loss buying rules apply in priority to the loss streaming rules.

If there is a tax avoidance motive, losses arising on assets owned by a company before it joins a group cannot be set off against capital gains at all, even gains arising on assets that it owned before it joined the group. These are the anti-loss buying rules. They apply to losses whether or not they have been realised by the time the company enters the group.

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