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HMRC internal manual

Corporate Finance Manual

FA2010: risk transfer schemes: introduction

The ‘Risk Transfer Schemes’ provisions was introduced in FA2010 to deal with a particular tax scheme generally known as ‘overhedging’.

This type of scheme does not generally involve active tax avoidance. Rather, the point of the scheme is to allow companies to enter into certain transactions that would normally bear an economic risk (e.g. exposure to foreign exchange) while passing that risk, through the tax system, on to the UK Exchequer.

The most common form of overhedging structure involve lending and borrowing transactions in foreign currencies where companies are seeking to benefit from differentials in interest rates between foreign currencies and sterling. However, the same principle can be applied to other economic risks where the pre-tax return would be subject to volatility and the risk transfer scheme provisions apply equally to the non-foreign currency scenarios.

These schemes are probably best understood by reviewing an example - see CFM63320. However, in brief, what the transactions seek to do is to create a mix of assets and liabilities amongst a number of group entities whose values are subject to opposing movements from fluctuation in some sort of rate, price or index. The change in value on one side of the transaction are taxed or relieved as income while the opposing change is non-taxable or capital. The trick is then to ensure that the relative values of the asset and liability are such that, regardless of the movement in the relevant rate, the group will be economically flat once the overall pre-tax result and relevant corporation tax position is taken into account.

Consequently, the group obtains all the benefits of being exposed to the relevant fluctuation, but without actually suffering that exposure. Instead, it is the UK Exchequer that bears the exposure through the group’s tax liabilities.


The risk transfer scheme provisions apply to accounting periods beginning on or after 1 April 2010.

Where a company has an accounting period that straddles that date, the accounting period is treated, for the purposes of these rules, as though it is split with the first accounting period ending on 31 March 2010 and the second accounting period beginning on 1 April 2010. Consequently, the risk transfer scheme provisions will apply to the latter deemed accounting period.