Finance Act 2002

Treatment of net gains and losses on terminal exercise of option U.K.

[F1 [F2 45H. (1) This paragraph applies where—

(a) a derivative contract is one to which paragraph 45D applies for an accounting period,

(b) rights that fall to be treated as comprised in the derivative contract are [F3 to any extent exercised or otherwise disposed of] in the accounting period, and

(c) those rights are rights to acquire shares.

(2) In any such case—

(a) sub-paragraph (3) has effect in relation to a disposal of the asset representing the creditor relationship mentioned in paragraph 45D(1)(b) (“the associated creditor relationship”), and

(b) sub-paragraph (4) has effect in relation to a disposal of all or any of the shares (“the relevant shares”) acquired—

[F4 (i) as a result of the exercise of rights mentioned in sub-paragraph (1)(b); and

(ii) in circumstances where a disposal is deemed not to occur by virtue of section 127 of the Taxation of Chargeable Gains Act 1992.]

(3) For the purpose of computing any chargeable gain accruing to the company on a disposal of the asset representing the associated creditor relationship, the sums allowable as a deduction under section 38(1)(a) of the Taxation of Chargeable Gains Act 1992 (acquisition costs) shall—

(a) if G exceeds L, be increased by the amount of that excess,

(b) if L exceeds G, be reduced by the amount of that excess.

(4) For the purpose of computing any chargeable gain accruing to the company on a disposal of all the relevant shares, the sums allowable as a deduction under section 38(1)(a) of the Taxation of Chargeable Gains Act 1992 (acquisition costs) shall—

(a) if G exceeds L, be increased by the amount of that excess,

(b) if L exceeds G, be reduced by the amount of that excess,

and, in the case of a part disposal of those shares, section 42(2) of that Act shall have effect accordingly.

(5) If the amount of the excess in sub-paragraph (3)(b) or (4)(b) is greater than the amount of expenditure allowable under section 38(1)(a) of the Taxation of Chargeable Gains Act 1992, the amount of the excess that cannot be deducted from the expenditure so allowable shall, for the purpose mentioned in sub-paragraph (3) or (4) (as the case may be), be added to the amount of the consideration for the disposal of the shares.

(6) In this paragraph—

• G is the sum of—

  (a)

  the initial carrying value of the derivative contract, and

  (b)

  the amounts of any chargeable gains treated as accruing to the company under paragraph 45A(4)(a) in respect of the derivative contract in each relevant accounting period, so far as referable, on a just and reasonable apportionment, to the shares acquired as a result of the exercise of rights mentioned in sub-paragraph (1)(b);

• L is the sum of the amounts of any allowable losses treated as accruing to the company under paragraph 45A(4)(b) in respect of the derivative contract in each relevant accounting period, so far as so referable.

(7) For the purposes of sub-paragraph (6)—

(a) the “initial carrying value” of the derivative contract is the amount treated in accordance with section 94A(2) of the Finance Act 1996 as the carrying value of the derivative contract at the time the company became party to the loan relationship;

(b) a “relevant accounting period” is—

(i) the accounting period in which the disposal in question is made, or

(ii) any previous accounting period.]]

Textual Amendments

F1 Sch. 26 paras. 45A-45I inserted (with effect in accordance with art. 1(2)(3)(4) of the amending S.I.) by The Finance Act 2002, Schedule 26, Parts 2 and 9 (Amendment) Order 2004 (S.I. 2004/2201), arts. 1(1), 15

F2 Sch. 26 paras. 45H, 45HA inserted (with effect in accordance with art. 1(3) of the amending S.I.) by The Finance Act 2002, Schedule 26, Parts 2 and 9 (Amendment No. 2) Order 2005 (S.I. 2005/2082), arts. 1(2), 17

F3 Words in Sch. 26 para. 45H(1)(b) substituted (with effect in accordance with art. 1 of the amending S.I.) by The Finance Act 2002, Schedule 26 (Parts 2 and 9) (Amendment No. 3) Order 2005 (S.I. 2005/3440), arts. 1, 9(2)

F4 Sch. 26 para. 45H(2)(b)(i)(ii) substituted (with effect in accordance with art. 1 of the amending S.I.) by The Finance Act 2002, Schedule 26 (Parts 2 and 9) (Amendment No. 3) Order 2005 (S.I. 2005/3440), arts. 1, 9(3)