Part 13Tax avoidance

F1CHAPTER 5FIncome-based carried interest

Annotations:
Amendments (Textual)
F1

Pt. 13 Ch. 5F inserted (with effect in accordance with s. 37(4) of the amending Act) by Finance Act 2016 (c. 24), s. 37(2)

Average holding period: derivatives and hedging

809FZGDerivatives

1

A derivative contract entered into for the purposes of an investment scheme is an investment, subject to the following provisions of this section.

2

The value invested in the derivative contract is—

a

where the contract is an option, the cost of acquiring the option (whether from the grantor or another person),

b

where the contract is a future, the price specified in the contract for the underlying subject matter, or

c

where the contract is a contract for differences, the notional principal of the contract.

3

But where entering into a derivative contract constitutes a deemed disposal of an investment or part of an investment by virtue of section 809FZD(2)(a)(ii)—

a

the derivative contract is not an investment, and

b

the subsequent disposal of the derivative contract without a corresponding disposal of the investment or part investment is to be regarded as the making of a new investment to the extent that the scheme becomes materially exposed to risks and rewards in respect of the investment or part investment.

4

For the purposes of this Chapter, references to disposal, in the case of a derivative contract, include any of the following events (to the extent that the event is not otherwise a disposal under section 809FZD(1) or (2))—

a

the expiry of the contract,

b

the termination of the contract (whether or not in accordance with its terms),

c

the disposal, substantial variation, loss or cancellation of the investment scheme's rights under the contract, and

d

in the case of a derivative contract which is an option, the exercise of the option,

but do not include the renewal of the contract with the same counterparty on substantially the same terms.

5

The substantial variation of an investment scheme's rights under a derivative contract constitutes (in addition to the disposal of the contract as originally entered into (see subsection (4)(c)) a new investment consisting of the contract as varied.