GIM9110 - Mutual insurance: tax treatment: accounting periods beginning on or after 1 October 2002: derivatives

The financial instrument (FI) legislation was replaced by FA02/SCH26 – derivative contracts – for accounting periods beginning on or after 1 October 2002.

The legislation applies to mutual general insurers in much the same way as the FI legislation did ( GIM9080). The scope of derivative contracts is wider than that of the FI legislation:

• share derivatives are within the scope of the legislation for proprietary general insurers like other financial traders (FA02/SCH26/PARA5). But paragraph 5 derivative contracts are not within the charge where held for the purposes of mutual general business (FA02/SCH26/PARA43).
• weather, credit and insurance derivative contracts are within the scope of the new rules, but not if they are contracts of insurance (FA02/SCH26/PARA12). The dividing line can often be thin in this area – but the accounting, and hence the tax treatment may be very different.