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HMRC internal manual

Company Taxation Manual

Authorised investment funds (AIFs): taxation of funds: derivative contracts

Capital profits or losses

The capital profits of an authorised investment fund (AIF) which are derived from transactions in futures, options, swaps or similar derivatives are exempt from tax. Where the contract is a ‘derivative contract’ within the regime created by FA02/SCH26 then profits, gains and losses that are treated as capital for accounting purposes by the Statement of Recommended Practice for AIFs are not taxed or relieved. (This follows from SI2006/964 Regulation 11. For accounting periods beginning before 1 April 2006 the same rules apply by virtue of paragraph 32 or 33, as the case may be, of FA02/SCH26.)

Profits or losses treated as income for accounting purposes

Profits or losses on derivatives, whether trading or non-trading, that are treated as income for accounting purposes are taxed under the normal rules of Schedule 26.

Contracts that are excluded from Schedule 26 (principally equity futures and options) may be exempted from tax if they come within the exemption in section ICTA88/S128 (and in that case they will be treated as capital profits and so will be exempt from tax in the AIF).

Further details on the treatment of derivatives, loan relationships and foreign exchange are given in the Corporate Finance Manual (CFM).

Accounting periods beginning on or before 30 September 2002

If any queries arise with respect to profits, gains or losses made by an AIF on derivative contracts in accounting periods beginning on or before 30 September 2002 please seek advice from CTIS (Collective Investment Schemes).