The Exchange Gains and Losses (Alternative Method of Calculation of Gain or Loss) Regulations 1994

Deemed gains and losses on disposal of matched assets

7.—(1) Subject to paragraph (2) below, paragraphs (3) to (8) below apply in any case where there is a disposal of an asset by a company at any time “the disposal time”) and at any time before the disposal time it was (to any extent) a matched asset for the purposes of an election for matching made by the company (“the relevant election”).

(2) Paragraphs (3) to (8) below do not apply—

(a) if the asset is re—acquired by the company under a contract made not more than 30 days before or 30 days after the disposal time; or

(b) if the relevant election specified the company’s net investment in a branch as the asset to be matched and the asset disposed of was immediately before the disposal time included in that investment.

(3) There shall be found as respects the liability or liabilities matched with the asset for each accrual period for which the relevant election has had effect—

(a) the amount of the initial exchange gain (if any) calculated in accordance with the preceding regulations, and

(b) the amount of the initial exchange gain which would have accrued if the relevant election had not had effect;

and the excess of the amount found under sub-paragraph (b) over that found under sub— paragraph (a), or if no amount is found under sub-paragraph (a) the amount found under sub-paragraph (b), for each period is referred to below as the amount by which the initial exchange gain for the period has been reduced.

(4) There shall be found as respects the liability or liabilities matched with the asset for each accrual period for which the relevant election has had effect—

(a) the amount of the initial exchange loss (if any) calculated in accordance with the preceding regulations, and

(b) the amount of the initial exchange loss which would have accrued if the relevant election had not had effect;

and the excess of the amount found under sub-paragraph (b) over that found under sub— paragraph (a), or if no amount is found under sub-paragraph (a) the amount found under sub-paragraph (b), for each period is referred to below as the amount by which the initial exchange loss for the period has been reduced.

(5) There shall be found—

(a) the aggregate of the amounts by which the initial exchange gains accruing as respects the liability for accrual periods for which the relevant election has effect have been reduced, and

(b) the aggregate of the amounts by which the initial exchange losses accruing as respects the liability for accrual periods for which the relevant election has effect have been reduced.

(6) Subject to regulation 8 and paragraphs (7) and (8) below—

(a) if the amount found under paragraph (5)(a) above exceeds the amount found under paragraph (5)(b) above, then for the purposes of the 1992 Act (and in addition to any chargeable gain or allowable loss which accrues otherwise than by virtue of this regulation) a chargeable gain shall be deemed to accrue to the company at the disposal time and the amount of the gain shall be equal to the amount of that excess;

(b) if the amount found under paragraph (5)(b) above exceeds the amount found under paragraph (5)(a) above, then for the purposes of the 1992 Act (and in addition to any chargeable gain or allowable loss which accrues otherwise than by virtue of this regulation) an allowable loss shall be deemed to accrue to the company at the disposal time and the amount of the loss shall be equal to the amount of that excess.

(7) Paragraph (6) above shall not apply if the asset disposed of is a ship or an aircraft, but instead, subject to regulation 8 and paragraph (8) below—

(a) if the amount found under paragraph (5)(a) above exceeds the amount found under paragraph (5)(b) above, an initial exchange gain, equal to the amount of that excess, shall be deemed to accrue to the company as respects the asset immediately before the disposal time;

(b) if the amount found under paragraph (5)(b) above exceeds the amount found under paragraph (5)(a) above, an initial exchange loss, equal to the amount of that excess, shall be deemed to accrue to the company as respects the asset immediately before the disposal time.

(8) Where there is a part disposal of the asset, the amount of the deemed gain or loss found under paragraph (6) or (7) above shall be reduced proportionately.