CFM16785 -
Taxing loan relationships: share-linked securities: taxing the
issuer: conditions for chargeable gains treatment
This guidance applies to periods of account beginning on or
after 1 January 2005
Issuer of share-linked security: conditions for chargeable
gains treatment
For the issuer to obtain chargeable gains treatment on the
derivative, in the period in which its debtor relationship comes to
an end, all the following conditions must be satisfied.
Conditions relating to the company
The issuer company must not:
- have become party to the overall debtor
loan relationship in the ordinary course of business as a bank or a
securities house, or
- be an Authorised Unit Trust, Investment
Trust, Open Ended Investment Company or Venture Capital Trust
(these concerns are exempt from tax on chargeable gains).
Conditions relating to the security
The company must not have originally become party to the overall
debtor loan relationship in an accounting period beginning before 1
January 2005.
Conditions relating to the derivative element
- The asset, or index of assets to whose
value the redemption amount is linked must be shares, or (for
periods ending on or before 30 December 2006) land. Unlike PARA45F
(
CFM16755), there is no restriction of
the underlying subject matter to particular types of share. (For
periods ending on or before 30 December 2006 land was also a
qualifying asset.)
- The derivative contract must be
either
- an “exactly tracking” contract,
or
- for periods ending on or after 17 August 2005 but
before 30 December 2006, one that would be “exactly
tracking”, but for a condition that the redemption price of
the security cannot fall below 10 per cent of the full issue price
(called “almost exactly tracking” for the purposes of
this guidance).
For periods beginning on or after 1 January 2005 and ending
before 16 March 2005, capital gains treatment was also denied where
the option was one to which any of FA02/SCH26/PARAS 6 to 8 applied.
These paragraphs were repealed for accounting periods ending on or
after 16 March 2005.
See
CFM16790 for an explanation of
“exactly tracking” and
CFM16795 for examples.
