Taxes Consolidation Act 1997 Schedule 18A paragraph 3

Gains from which pre-entry losses are to be deductible

Paragraph 3 of Schedule 18A restricts the chargeable gains against which a company's pre-entry losses may be offset after it joins a group, distinguishing between actual pre-entry losses and the pre-entry proportion of latent losses, and making special provision where two or more companies from an existing group join a new group together.

• An actual pre-entry loss (one already realised before the company joined the group) may only be set against gains on pre-entry disposals in the same accounting period, gains on assets the company already held at the entry date, or gains on assets acquired post-entry from outside the group and used solely for a trade the company was carrying on before and after entry.
• A latent pre-entry loss (the pre-entry proportion of a loss that crystallises after entry on an asset brought into the group) is subject to the same matching restrictions, applied by reference to the "initial company" that brought the pre-entry asset into the group.
• Where two or more companies leave an existing group together and join a new group at the same time, they are effectively treated as a single company for the purpose of matching pre-entry losses against gains, so that relief remains available across the former group relationship.
• In all cases, the effect is to prevent a company from sheltering gains on assets acquired within the new group by using losses that arose before the company joined.