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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
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Futures: contracts not closed out

The treatment of a futures contract which runs to completion depends upon the method of completion. The same rules apply whether the future is traded on a futures exchange or sold over-the-counter. In practice you are likely to find over-the-counter futures will be held until maturity but traded futures will normally be closed out.

A commodity future not closed out will be settled by delivery of whatever is the subject of the contract, for example, 20 tonnes of cocoa in March at a price of £1,900 per tonne.

A financial future may be satisfied by delivery of an underlying asset such as a foreign currency. In other cases the future will be satisfied by a cash payment because there is no underlying asset, for example, LIFFE contracts covering movements in the FTSE 100 Index.

If the contract is settled by delivery of the underlying asset the normal Capital Gains rules apply. Thus, if the taxpayer acquires a chargeable asset, no capital gain or loss will accrue until that asset is disposed of.

If an asset acquired under the forward contract is sold the disposal is dealt with as an ordinary disposal. The normal Capital Gains rules apply to identify the asset sold. In the case of both commodity and financial futures the assets are likely to be fungible and therefore the pooling rules in TCGA92/S104 will apply, see CG51550+.