D2.412 Relevant group—Groups absorbed
The rules in this article apply only where the loss buying rules (D2.402–D2.406) do not apply. As a result, for accounting periods ending after 4 December 2005, the following provisions will normally only apply in cases where there is no arrangement for avoiding tax, eg on a merger or takeover.
Members of a group which is absorbed or taken over (Group S), are treated for the purpose of the capital loss restrictions as joining the enlarged group (Group A), at the time when the principal company of the group absorbed or taken over (Group S) became a member of the other group (Group A)1.
The interpretation of this basic rule was considered in Five Oaks Properties Ltd2 and Prizedome Ltd and Limitgood Ltd3.
The facts of the two cases were similar, and in both cases it was held that losses that were already pre-entry capital losses in the acquired group (Group 1) could not be subsequently offset against non-pre-entry gains in Group 1 when