CFM16790 - Taxing loan relationships: share-linked securities: taxing the issuer: conditions for chargeable gains treatment: meaning of “exactly tracking contract”

This guidance applies to periods of account beginning on or after 1 January 2005

Issuer of share-linked security: conditions for chargeable gains treatment: exactly tracking contracts

The meaning of “exactly tracking” has changed since the original “paragraph 45 alphabet” was introduced. For accounting periods beginning on or after 1 January 2005, the original meaning of “exactly tracking” followed the definition in FA02/SCH26/PARA45F ( CFM16760).

However, the rules were changed by SI2005/2082 so that for accounting periods beginning on or after 1 January 2005 and ending on or after 17 August 2005, “exactly tracking” also meant contracts that were “almost exactly tracking”. See the example in CFM16795.

Accounting periods ending after 30 December 2006

SI2006/3269 amended the definition of “exactly tracking” for accounting periods beginning on or after 1 January 2005 and ending after 30 December 2006, in effect to repeal the “almost exactly tracking” rules. The contract is “exactly tracking” where the amount required to redeem the security (“D”) is equal to the issuer’s proceeds from issuing the security as recognised in accordance with generally accepted accounting practice (“C”), increased or reduced by the exact percentage change in the value of the linked asset(s) (“R”) over the “relevant period”. As with the rules for holders of such securities, some variation in the period may be permitted ( CFM16760).