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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Employment-related securities and options: options and futures: futures

The definition of security includes “futures” (see ITEPA03/S420 (1)(f) and (3)). “Futures” means “rights under a contract for the sale of a commodity or other property under which delivery is to be made at a future date at a price agreed when the contract is made”. For this purpose, a price is taken to be agreed when the contract is made:

  1. if it is left to be determined by reference to the price at which a contract is to be entered into on a market or exchange or could be entered into at a time and place specified in the contract, and
  2. in a case where the contract is expressed to be by reference to a standard lot and quality, even if provision is made for a variation in the price to take account of any variation in quantity or quality on delivery.

Futures used in avoidance schemes

If futures are used as part of an employee reward or incentive scheme, there is very likely to be avoidance of tax or NIC involved.

A common instrument used in schemes was a gilt future created by Bank A agreeing to sell £26,000 nominal value of gilts at a future date to Bank B, which agrees to buy them for £1,000. Such a contract in the hands of Bank B is clearly worth £25,000. In practice, the contract would be settled in cash, without gilts being involved, having been passed through the hands of the employee and others in a series of transactions.

If you see such instruments being used, please pass the case to the Technical Advisers, ESSU - see ERSM10040.