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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Old rules: derivative contracts: transition to FA02 SCH26: contracts with guaranteed minimum returns

Contracts with guaranteed minimum returns

FA02/SCH26/PARA7 ensures that all contracts designed to secure that a guaranteed amount is payable on maturity come within the derivative contract regime for accounting periods beginning on or after 1 October 2002.

Where a company holds a Para 7 contract, it can elect under FA02/SCH26/PARA48 for it to be treated as if it were a zero coupon bond plus an option.

But Para 48 applies only to contracts entered into on or after a company’s commencement day. FA02/SCH28/PARA5 is a transitional provision allowing companies to make a similar election for Para 7 contracts entered into before the commencement day.

Para 7 contracts are entered into exclusively, or almost exclusively, by life assurance companies. Full guidance is given in the Life Assurance Manual (LAM).