CFM14011 - Collective investment schemes: company holdings: derivatives based on holdings

Company holdings: derivatives based on holdings

This guidance describes the post FA 2002 provisions for the taxation of loan relationships, derivative contracts and forex.

The provisions which bring certain holdings by a company in unit trusts, offshore funds and open- ended investment companies within the loan relationships regime are covered at CFM14010. Further legislation is, however, required if what the company acquires is not actually the holding itself but a financial instrument based on the holding.

These provisions are found at FA02/SCH26/PARA36. They apply when a company is party to a relevant contract that is not a derivative contract, as defined in the legislation, but the underlying subject matter of which consists wholly or partly of a relevant holding (see CFM14011a). Where the conditions apply, the relevant contract is treated as if it was a derivative contract and any profits or losses thereon are computed on an authorised mark to market basis for periods of account beginning before 1 January 2005 and on a fair value basis of accounting for periods of account beginning on or after 1 January 2005.

A relevant contract is as defined in the derivatives contract legislation (FA02/SCH26/PARA 2) i.e. an option, a future or a contract for differences.

Please contact CT & VAT Technical where advice is needed on the pre-FA 2002 rules.