These examples apply only to periods of account beginning before 1 January 2005.
Jibmunt Ltd, a company quoted on the London Stock Exchange,
issues a corporate bond with an attached warrant. The warrant
(which is capable of being detached from the bond and traded
separately) entitles the holder to subscribe for shares in the
company at a future date, and carries no other rights. The warrant,
whether traded with the bond or separately, is an option and
therefore a relevant contract. But because its underlying subject
matter is shares, and only shares, it will be excluded from the
derivatives contract regime. You would need to treat the option in
the way set out in TCGA92/S144, see CG55400+.
Interest that the company pays on the bond and any profit or
loss it makes when the bond is redeemed will be dealt with under
the loan relationships rules.
Kabcon Ltd is an investment company which enters into an equity
index swap with a bank. If the FTSE100 index rises in a particular
period, Kabcon Ltd receives a payment from the bank based on the
percentage rise in the index. If the FTSE100 falls, the company
pays the bank. At the same time, Kabcon Ltd makes a payment to the
bank equal to interest, calculated at LIBOR less 0.75%, on a
notional principal amount.
The contract has two underlying subject matters, shares and
an interest rate (or a notional loan). Only one of these is
excluded. The contract therefore falls within the derivative
contracts regime.
