CFM62310 - Foreign exchange: matching: bringing amounts back into account: disposals of matched assets other than shares

Matched asset is a loan relationship, ship or aircraft

The mechanism in regulation 4 of the EGLBAGL Regulations for bringing amounts back into account as chargeable gains or allowable losses does not apply where the matched asset is a loan relationship, a ship or an aircraft.

Instead, regulation 6 provides for a ‘net gain’ to be brought back into account as a loan relationship credit, and ‘net loss’ as a debit. This applies to disposals both before and after 6 April 2010.

Where an investment in a foreign operation takes the form of a loan relationship, two separate points need to be considered if the loan is repaid or otherwise disposed of:

  • bringing back into account exchange gains or losses on borrowing or derivatives that have hedged the investment - this is what regulation 6 does; and
  • bringing back into account any exchange gains or losses on the loan asset itself.

Regulation 13 applies to the latter (see CFM62470).

Periods beginning before 1 January 2005

For periods beginning before 1 January 2005, regulation 6 did not apply where the asset concerned was a loan relationship and was

  • a convertible security falling within FA96/S92, or
  • an asset-linked security within FA96/S93.

It would be unusual for a company’s investment in a foreign entity to be structured so as to qualify for capital gains treatment under either S92 or S93. If, however, you encounter a disposal of a convertible security within S92, you should look at CFM82240, which explains the special rule that applies in such a case. There is an example at CFM82250.