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Where the conditions detailed at D2.402 are met, the qualifying loss cannot be deducted from chargeable gains accruing to the company¹. This ensures that a company with qualifying losses cannot use them to reduce gains on the disposal of shares in a directly held subsidiary where the gains are attributable to an increase in the value of assets the subsidiary holds, but which were acquired after the change of ownership.

The rule applies whether the qualifying loss accrues before, on or after the change of ownership and irrespective of the existence at that time of a gain from which it could have been deducted; the tax advantage need not be obtained by the relevant company².

If an identification issue arises in relation to the set off of earlier losses where some are not caught by these anti-avoidance provisions and some are, the set off may be made in the manner most beneficial to the company³.

Example 1

B Ltd is a company with realised but unrelieved capital losses.