Finance Act 2002

76 Asset-linked loan relationships involving guaranteed returns

(1) After section 93 of the Finance Act 1996 insert—

“93A Relationships linked to the value of chargeable assets: guaranteed returns

(1) This section applies to a loan relationship which is a creditor relationship of a company if—

(a) that loan relationship and one or more other transactions are associated transactions designed to produce a guaranteed return;

(b) any such other transaction is a disposal of futures or options; and

(c) the guaranteed return comprises the return consisting of the amount that must be paid to discharge the money debt arising in connection with that loan relationship taken together with the return from any one or more of the disposals of futures or options.

(2) For the purposes of this section a loan relationship of a company and one or more disposals of futures or options are transactions designed to produce a guaranteed return if, taking the transactions together, it would be reasonable to assume, from considering—

(a) the likely effect of the transactions,

(b) the circumstances in which the transactions are entered into, or in which any of them is entered into, or

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

that the main purpose of the transactions, or one of their main purposes, is or was the production of a guaranteed return from the loan relationship and any one or more of the disposals.

(3) For the purposes of this section a guaranteed return is produced from the loan relationship and any one or more of the disposals of futures or options wherever (taking all the transactions together) risks from fluctuations in the underlying subject matter are so eliminated or reduced as to produce a return from the transactions—

(a) the amount of which is not, to any significant extent, attributable (otherwise than incidentally) to any such fluctuations; and

(b) which equates, in substance, to the return on an investment of money at interest.

(4) For the purposes of subsection (3) above the cases where risks from fluctuations in the underlying subject matter are eliminated or reduced shall be deemed to include any case where the main reason, or one of the main reasons, for the choice of that subject matter is—

(a) that there appears to be no risk that that subject matter will fluctuate; or

(b) that the risk that it will fluctuate appears to be insignificant.

(5) In this section—

(a) the references, in relation to a loan relationship, to the underlying subject matter are references to the value of chargeable assets of a particular description to which that relationship is linked;

(b) the references, in relation to a disposal of futures or options, to the underlying subject matter are references to or to the value of the commodities, currencies, shares, stock or securities, interest rates, indices or other matters to which, or to the value of which, those futures or options are referable.

(6) Subsection (5)(a) above is to be construed in accordance with section 93 above.

(7) For the purposes of this section—

(a) references to the disposal of futures or options are to be construed in accordance with paragraphs 4 and 4A of Schedule 5AA to the Taxes Act 1988;

(b) references to the return from one or more disposals of futures or options are to be construed in accordance with paragraph 5 of that Schedule; and

(c) references to associated transactions are to be construed in accordance with paragraph 6 of that Schedule.”.

(2) The amendment made by this section has effect for accounting periods ending on or after 26th July 2001 in relation to any loan relationship of a company, unless the loan relationship in question is one to which the company ceased to be a party before that date.