CFM16650 - Taxing loan relationships: “hybrid” securities: taxing the embedded derivative: summary of the “paragraph 45 alphabet”
This guidance applies for periods of account beginning on or after 1 January 2005
Summary of the “paragraph 45 alphabet”
The following table is a summary of the “paragraph 45 alphabet” as it currently applies. However, the rules have been amended a number of times since its introduction by SI2004/2001. CT&VAT should be consulted in cases where computations for periods ending in 2005 or 2006 appear not to accord with the following CFM paragraphs, and it is claimed that an earlier version of the legislation applies.
| PARA | APPLICATION | BROAD EFFECT | CFM |
| 45A | Holders of certain derivatives | Annual chargeable gains on derivatives within 45C, 45D, 45F, 45G | 16660 |
| 45B | Holders of certain derivatives | Carry back of 45A losses to APs beginning 2 years before loss period | 16660 |
| 45C | Property derivatives | Derivatives over land and tangible moveable property taxed under 45A | 13532 |
| 45D | Holders of convertibles | FA96/S94A options over shares taxed under 45A | 16665 |
| 45E | Holders of convertibles | 45D does not apply where shares have pre-determined cash value | 16665 |
| 45F | Holders of asset linked securities | FA96/S94A ‘exactly tracking’ contracts for differences over shares taxed under 45A | 16750 |
| 45FA | Holders of asset linked securities | 45D and 45F ‘existing contracts’ taxed under TCGA rules | 16805 |
| 45G | Property derivatives | Property based contracts for differences taxed under 45A | 13538 |
| 45H | Holders of convertibles | Annual chargeable gains on 45D options excluded from TCGA computations | 16680 |
| 45HZA | Holders of convertibles | Annual chargeable gains on 45F contracts for differences excluded from TCGA computations | 16775 |
| 45HA | Holders of certain share options | SCH 26 debits and credits excluded from TCGA computations on free standing share options and futures | |
| 45I | Holders of indexed gilts | FA96/S94A contracts for differences over indexed gilts not taxable under FA02/SCH26 | 13550 |
| 45J | Issuers of convertibles | FA96/S94A options over
shares:
if shares delivered – TCGA gain equal to fair value of the option, or TCGA loss if shares acquired to satisfy option exceed this if cash settled – TCGA loss of cash cost over fair value of the option if option lapses – TCGA gain equal to fair value of the option | 16705 |
| 45JA | Issuers of convertibles | FA96/S94A equity instruments/options over shares – tax nothing on conversion, or TCGA loss if cash redemption instead of share issue | 16695 |
| 45K | Issuers of asset linked securities | FA96/S94A ‘exactly tracking’ contracts for differences over shares – TCGA loss on redemption | 16780 |
| 45KA | Issuers of asset linked securities | 45K ‘existing contracts’ – tax nothings on redemption | 16810 |
| 45L | Non-financial embedded derivatives | Non-financial embedded derivatives treated as if not bifurcated, subject to election to follow bifurcation | 13552 |
| 45LA | Non-financial embedded derivatives | Election to follow bifurcation of 45L contracts deemed made by all group companies | |
| 45M | Non-financial embedded derivatives | Over-rides 45L for ‘nested derivatives’ and ‘quasi-derivative host contracts’ – treated as two assets for tax. Mainly applicable to insurance companies. | 13564 |
