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HMRC internal manual

Corporate Finance Manual

Old rules: derivative contracts: underlying subject matter: land and chattels

2004 changes - property derivatives

This guidance applies to periods of account beginning before 1 January 2005 

Property derivatives are derivatives whose underlying subject matter is land or tangible moveable property (i.e. chattels). Before 2004 the market in such derivatives was extremely limited, partly because of uncertainty about their tax treatment. In order to remove tax obstacles to the development of property derivatives, they were brought into the Schedule 26 regime (now under CTA09/PT7) by the Finance Act 2002, Schedule 26, Parts 2 and 9 (Amendment) Order 2004.

For contracts entered into before 1 August 2004 or after that date but in an accounting period ending before 16 September 2004, any estate or interest in land is an excluded subject matter, wherever the land is situated. This applies to buildings on the land, but not to crops growing on the land, or minerals beneath it.

Chattels of all kinds - from office stationery (such as paper clips) to works of art - apart from commodities (see CFM50240) - are excluded where the contract was entered into before 1 August 2004 or after that date in an accounting period ending before 17 September 2004. This exclusion was removed together with the exclusion for land in 2004 because the land or buildings that form the underlying subject matter of a property derivative may contain plant or machinery such as lifts, radiators or light fittings. Such items may in law be part of the building (fixtures) or they may be chattels. So a property derivative may have underlying subject matters of both land and chattels. In practical terms there is no need to distinguish between ‘land’ and ‘chattels’ since both are treated in the same way for tax purposes.