SCHEDULES

SCHEDULE 26U.K.Derivative contracts

Modifications etc. (not altering text)

C1Sch. 26 modified by 1996 c. 8, s. 86(3C) (as inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by 2002 c. 23, s. 82, Sch. 25 Pt. 1 para. 6(3))

C2Sch. 26 extended (retrospective to 30.9.2002) by Finance Act 2003 (c. 14), s. 177(4)(8)(11)

C3Sch. 26 applied by 1988 c. 1, s. 440(2B) (as amended (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 70)

C4Sch. 26 modified by 1996 c. 8, s. 94A (as inserted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 13)

C5Sch. 26 applied (with modifications) (5.10.2004) by Energy Act 2004 (c. 20), s. 198(2), Sch. 9 para. 24 (with s. 38(2)); S.I. 2004/2575, art. 2(1), Sch. 1

C6Sch. 26 applied (with modifications) (5.10.2004) by Energy Act 2004 (c. 20), s. 198(2), Sch. 9 para. 12 (with s. 38(2)); S.I. 2004/2575, art. 2(1), Sch. 1

Part 9U.K.Miscellaneous

Creditor relationships: embedded derivatives which are exactly tracking contracts for differencesU.K.

[F145F.(1)This paragraph applies to a derivative contract of a company for an accounting period if the following conditions are satisfied—

(a)section 94A of the Finance Act 1996 (loan relationships with embedded derivatives) has effect in relation to a creditor relationship of the company,

(b)the derivative contract is the relevant contract, or one of the relevant contracts, to which the company is treated under subsection (2)(b) of that section as party in the case of that creditor relationship,

(c)that relevant contract is treated by virtue of subsection (3) of that section as a contract for differences,

(d)the additional conditions in sub-paragraph (2) are satisfied.

(2)The additional conditions are—

(a)the creditor relationship is not one to which the company is party at any time in the accounting period for the purposes of a trade carried on by the company (but see sub-paragraph (3)),

F2(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c)the underlying subject matter of the derivative contract—

(i)is land (wherever situated), or

(ii)is qualifying ordinary shares listed on a recognised stock exchange,

(d)the company is not a body falling within paragraph 45C(3) (authorised unit trusts etc),

(e)the derivative contract is an exactly tracking contract (see sub-paragraphs (4) to (6)).

(3)The condition in sub-paragraph (2)(a) does not apply if the company—

(a)is party to the creditor relationship for the purposes of life assurance business, or

(b)is a mutual trading company.

(4)For the purposes of this paragraph “an exactly tracking contract” is a contract for differences where D is equal to the amount determined by applying R% to C, where—

  • D is the amount that must be paid to discharge the rights and liabilities that fall to be treated as comprised in the contract;

  • R% is a relevant percentage change in the value of the underlying subject matter of the contract (see sub-paragraph (5));

  • C is the amount falling for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 to be regarded in accordance with generally accepted accounting practice as the initial cost of the asset which represents the creditor relationship.

(5)In sub-paragraph (4), the reference to a relevant percentage change in the value of the underlying subject matter of the contract is a reference to the percentage change (if any) over the relevant period in—

(a)the value of the assets which are the underlying subject matter of the contract,

(b)or any index of the value of those assets.

(6)In sub-paragraph (5) “the relevant period” means—

(a)the period between—

(i)the date when the asset representing the creditor relationship came into existence, and

(ii)the date when the corresponding debtor relationship comes to an end; or

(b)any other period in which almost all of that period is comprised, and which differs from that period exclusively for purposes connected with giving effect to a valuation in relation to rights or liabilities under the asset representing the creditor relationship.

(7)In this paragraph “qualifying ordinary shares” means shares which satisfy Condition 1 in paragraph 45D(5).

[F3(8)A loan relationship which is one to which sub-paragraph (1) applies, shall not be treated as a qualifying corporate bond by virtue of section 117(A1) of the Taxation of Chargeable Gains Act 1992, if this paragraph applies to the embedded derivative contract.]]

Textual Amendments

F1Sch. 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

F2Sch. 26 para. 45F(2)(b) omitted (with effect in accordance with art. 1(2) of the amending S.I.) by virtue of The Finance Act 2002, Schedule 26, Parts 2 and 9 (Amendment) Order 2005 (S.I. 2005/646), arts. 1(1), 15

F3Sch. 26 para. 45F(8) added (with effect in accordance with art. 1(2) of the amending S.I.) by The Finance Act 2002, Schedule 26, Parts 2 and 9 (Amendment No. 2) Order 2004 (S.I. 2004/3270), arts. 1(1), 7