Deemed disposal carry backs

Part 2 of an occasional series - things that make no sense to me -  this time carry back of deemed disposal losses.

Since 2003 a company with a deemed loss has only been able to carry that loss back for two years under TCGA 1992 section 213(3).  (Prior to 2003 a six year carry back applied).  A two year carry back seems inappropriate for a deemed disposal regime.  For instance say that a life insurance company  purchased an asset for £100 and that the asset increased in value by 70 for the first seven years of ownership.  In year 8 its value falls by £490 (i.e. all the way back to its original value of £100) and in year 9 it is sold for £100.

If this asset was not a deemed disposal asset then there would be no chargeable gain on disposal (asset cost £100 sold for £100) but if the asset is subject to deemed disposals then gains of £250 will be taxed even though there is no economic gain.  There are however, losses of £250 to carry forward due to the deemed disposal rules but no guarantee of utilization.  

The example uses some stylized figures to bring out the point but the real world stock market seems to be characterized by long periods of appreciation and sudden falls.  As well as the unfairness I think this effect is sometimes missed by companies making long term estimates of their tax liabilities.  That is such estimates often use a steady rate of investment appreciation but in doing so don't capture the perverse interaction of sudden fluctuations in asset values and the weird and legislation governing offset of losses.