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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Derivative contracts: chargeable gains on derivatives: summary

Summary of CTA09/Chapters 7 and 8

This section of the guidance covers interactions between derivative contracts and the chargeable gains code. Chapter 7 of CTA09 deals with the cases where profits or losses on derivatives are brought into account as chargeable gains, rather than as income. Chapter 8 contains a number of miscellaneous provisions concerning chargeable gains.

The provisions in Chapters 7 and 8 relate, broadly, to:

  • ‘annual chargeable gains’ on certain derivatives, and the carry back of capital losses arising from such derivatives
  • the tax treatment of certain property derivatives
  • the tax treatment of convertible or share-linked securities, from the holder’s perspective
  • the tax treatment of such securities for the issuing company, and
  • the interaction with TCGA 1992 where an equity derivative results in physical delivery of shares.

This part of the guidance deals with the first, second and fifth bullet points above. The third and fourth bullet points are covered at CFM55200+ and CFM55400+ respectively.

You may find the table below of help in locating the statutory provisions or guidance you are looking for.

CTA09 APPLICATION BROAD EFFECT PREVIOUSLY UNDER SCH 26 FA 02 CFM
         
641-642 Holders of certain derivatives Annual chargeable gains on derivatives within S643 to S650 45A CFM55030
643- 644 Property derivatives Derivatives over land and tangible moveable property taxed under S641 45C CFM55080
645, 647 Holders of convertibles Options over shares taxed under S641 45D  
(FA96/S94A) CFM55220        
  646 Holders of convertibles S645 does not apply where shares have pre-determined cash value 45E CFM55220
  648- 649 Holders of share linked securities ‘Exactly tracking’ contracts for differences over shares taxed under S641 45F  
(FA96/S94A) CFM55290        
  650 Property derivatives Property based contracts for differences taxed under S641 45G CFM55100
  651- 655 Issuers of convertibles Options over shares:    

Shares delivered - TCGA gain equal to fair value of option or TCGA loss if shares acquired to satisfy option exceed this

Cash settled - TCGA loss of cash cost over fair value of option

Option lapses - TCGA gain equal to fair value of option 45J
(FA96/S94A) CFM55420      
  651, 656-658 Issuers of share linked securities ‘Exactly tracking’ contracts for differences over shares - TCGA loss on redemption 45K
(FA96/S94A) CFM55470        
  660 Contract relating to holding in OEIC, unit trust or offshore fund was previously a chargeable asset Bring into account gains/ losses treated as accruing on a deemed disposal in the AP when it ceases to be party to the derivative contract 37 CFM54040
  661 Contract becomes a derivative contract having previously been a chargeable asset Bring into account gains/ losses treated as accruing on a deemed disposal in the AP when it ceases to be party to the derivative contract 43A CFM50830
  662 Contract ceases to be derivative contract Company deemed to dispose of the contract for its notional carrying value 43B CFM50840
  663- 664 Holders of certain derivatives Carry back of S641 losses to APs beginning 2 years before loss period 45B CFM55040
  665-666 Issuers of convertibles Equity instruments/ options over shares - tax nothing, or TCGA loss if cash redemption instead of share issue 45JA  
(FA96/S94A) CFM55510        
  667-669 Holders of certain share options CTA09/PT7 debits and credits excluded from TCGA computations on free standing share options and futures 45HA CFM55130
  670-671 Holders of convertibles Annual chargeable gains on S645 options excluded from TCGA computations 45H CFM55230
  672-673 Holders of share-linked securities Annual chargeable gains on S648 contracts for differences excluded from TCGA computations 45HZA CFM55290