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D2.410 Pre-entry capital losses—other restrictions

The rules in this article apply only in cases where the loss buying rules (¶Ù2.402–D2.404) do not apply. This will normally be the case where there is no arrangement for avoiding tax, eg on a merger or takeover.

In essence, the pre-entry loss provisions prevent a company from buying another company to become part of either a new or existing group, in order to use its capital losses.

The rules operate when a company joins a 'relevant group' (see below). Relief for a pre-entry loss (D2.410) is then restricted (D2.425) so that it cannot be set against gains realised after joining the relevant group. This restriction therefore places limits on the tax benefits that a group can obtain from purchasing another company or group that has accrued capital losses.

When applying these pre-entry loss provisions it is therefore