Finance Act 2002

Qualified exclusion: guaranteed amount payable on maturity

7 (1) Paragraph 4 does not prevent a relevant contract to which this paragraph applies from being a derivative contract.

(2) This paragraph applies to a relevant contract of a company if—

(a) its underlying subject matter consists, or is treated as consisting, wholly of—

(i) shares in a company,

(ii) rights of a unit holder under a unit trust scheme, or

(iii) assets representing a loan relationship to which either section 92 or 93 of the Finance Act 1996 applies, and

(b) it satisfies the condition in sub-paragraph (3).

(3) The condition referred to in sub-paragraph (2)(b) is that—

(a) the relevant contract is designed to secure that the relevant amount payable in respect of the relevant contract does not fall below the guaranteed amount, or

(b) the relevant contract and one or more of the following, namely—

(i) one or more other relevant contracts, whose underlying subject matter consists wholly or partly of shares in a company, rights of a unit holder under a unit trust scheme or assets representing loan relationships to which either section 92 or 93 of the Finance Act 1996 (c. 8) applies, and which would be derivative contracts if the condition in this sub-paragraph were satisfied in relation to them,

(ii) one or more assets representing loan relationships to which either section 92 or 93 of that Act applies, and

(iii) one or more assets representing loan relationships to which section 93A of that Act applies,

are associated transactions designed to secure that the relevant amount payable in respect of the associated transactions does not fall below the guaranteed amount.

(4) For the purposes of this paragraph the relevant contract in question is, or that contract and the other associated transactions are, designed to secure that the relevant amount payable in respect of that contract, or that contract and any one or more of the other associated transactions, does not fall below the guaranteed amount if, as regards that contract, or as regards that contract and the transactions, taken together, it would be reasonable to assume, from considering—

(a) the likely effect of that contract or of that contract and the other associated transactions,

(b) the circumstances in which—

(i) that contract is entered into or acquired, or

(ii) that contract and the other associated transactions, or any of them, are entered into or acquired, or

(c) the matters in both of paragraphs (a) and (b),

that the main purpose (or one of the main purposes) of that contract, or of that contract and the other associated transactions, is or was to secure that the relevant amount so payable does not fall below the guaranteed amount.

(5) For the purposes of this paragraph the guaranteed amount is—

(a) in a case where the relevant contract in question is designed as described in sub-paragraph (3)(a), 80% of the consideration paid or payable by the company for entering into, or acquiring, that contract, or

(b) in a case where the relevant contract in question and the other associated transactions are designed as described in sub-paragraph (3)(b), 80% of the consideration paid or payable by the company or a company which is a connected company in relation to that company for entering into, or acquiring, any one or more of the associated transactions.

(6) For the purposes of this paragraph the relevant amount payable is—

(a) in a case where the relevant contract in question is designed as described in sub-paragraph (3)(a), the amount payable, in money or money’s worth, to any person on the maturity of that contract, or

(b) in a case where the relevant contract in question and the other associated transactions are designed as described in sub-paragraph (3)(b), the amount payable, in money or money’s worth, to any person on the maturity of any one or more of the associated transactions.

(7) For the purposes of sub-paragraph (6) the amount payable on maturity is—

(a) in the case of a relevant contract, the amount payable on performance of the relevant contract, or

(b) in the case of an asset representing a loan relationship, the amount that must be paid to discharge the money debt arising in connection with that relationship.

(8) For the purposes of this paragraph a company is a connected company in relation to another company if, in the accounting period in question, there is a connection between the company and that other company; and whether there is a connection between those companies shall be determined in accordance with sections 87(3) and (4) and 87A of the Finance Act 1996 (c. 8) (disregarding section 88 of that Act).

(9) Paragraph 9 applies for the purpose of determining whether the underlying subject matter of a relevant contract is to be treated as consisting wholly of the property referred to in sub-paragraph (2)(a).

(10) This paragraph has effect subject to paragraph 48 (which provides for a company to elect to treat a relevant contract falling within this paragraph as two assets).