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HMRC internal manual

International Manual

HM Revenue & Customs
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Non-residents trading in the UK: through UK investment managers, brokers or Lloyd’s agents: investment managers: "investment transaction": transactions in relevant contracts

What are “relevant contracts”?


For the purpose of regulation 2(2)(b) and 3 of the Investment Transactions (Tax) Regulations 2014 ‘relevant contract’ has the same meaning as detailed in Part 7 of the Corporation Tax Act 2009 (CTA09). A ‘relevant contract’ is

An option;

A future; or

A contract for differences.

These three terms are defined in S.580, S.581 and S.582 respectively of CTA09. There is guidance at CFM50320 onwards about their meaning.This is subject to paragraphs (2) to (4) of the Investment Transactions (Tax) Regulations 2014.

Para 2 prevents an option, future or contract for differences from being a relevant contract where the contract relates to land. But this exclusion does not apply to contracts the underlying subject matter of which is an index, provided that

the index is publicly accessible,

comprised of a significant number of properties, and

not maintained by

the non-resident person,

the investment manager,

or a person or persons connected with either.

Connection is determined in accordance with ITA07/S993 and S994 (for income tax) and CTA10/S1122 (for corporation tax).

The conditions in regulation 3(2) are designed to exclude arrangements that may be structured in such a way as to replicate or approximate the returns from specified or identifiable holdings of land. Such arrangements would be contrary to the general prohibition on transactions in land and contracts relating to land.

In order to meet the “significant number of properties” condition, an index must be sufficiently broadly based to ensure that a contract based upon it is not tailored around specific real estate holdings. Publicly accessible indices providing regional and sectoral data based upon valuations of a wide and changing range of institutional investment portfolios will, for example, meet this requirement.

The Transfer Pricing Team at Business International can advise on the admissibility of property indices in particular cases of doubt or difficulty.

Para 3 provides that a contract will not be a relevant contract where physical delivery of the underlying property takes place and that property is not of a type itself specified in 2(2) of the regulations.

Contracts which provide for, but do not result in, physical delivery are not excluded (whatever the underlying subject matter) and neither are contracts which result in the delivery of property, transactions in which are themselves specified in the regulations. For example, a transaction in an option which has a physical commodity, such as wheat, as the underlying property is not prevented from being a relevant contract by regulation 3(3) provided the option is not settled by physical delivery of the commodity. A transaction in an option which is settled by the delivery of shares, for example, will be a relevant contract, because transactions in shares are themselves specified in the regulations.

Para 4 deals with warrants which are options and therefore are relevant contracts.

Where an instrument entitles the holder to subscribe for shares or assets representing a loan relationship of a company it is a warrant and so qualifies as a relevant contract

The application of Para 4 requires that, in order to determine whether shares and assets represent a loan relationship, references to loan relationship in the CTA2009/S710 definition of “warrant” should be construed in line with Regulation 4.