Amendment of Part 9 of Schedule 26 to the Finance Act 2002
18. After paragraph 45L insert—
“Treatment of host contract as a loan relationship
45M.—(1) This paragraph applies where—
(a)a company is treated under paragraph 2(4) as party to a derivative contract,
(b)that contract is (within the meaning of paragraph 3(3)) treated for accounting purposes as a derivative financial instrument, and
(c)the underlying subject matter of that contract consists, or is treated as consisting, wholly of—
(i)shares in a company, or
(ii)rights of a unit holder under a unit trust scheme.
(2) Where this paragraph applies—
(a)the host contract shall be treated for the purposes of the Corporation Tax Acts as if it were a creditor relationship of the company which is a zero coupon bond, and
(b)the derivative contract shall be treated as satisfying the conditions in paragraph 4(2A).
(3) For the purposes of this paragraph a “zero coupon bond” is a security—
(a)whose issue price is less than the amount payable on redemption, and
(b)which does not provide for any amount to be payable by way of interest.
(4) Paragraph 9 applies for the purpose of determining whether the underlying subject matter is to be treated as consisting wholly of property referred to in sub-paragraph (1)(c).”.