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HMRC internal manual

Savings and Investment Manual

Artificial transactions in futures and options: introduction (this guidance applies to disposals of futures and options before 6 April 2013)


For individuals and trusts, profits from transactions in derivative contracts are not generally taxable as income unless they are profits of a trade. BIM65701 gives guidance on what constitutes derivatives trading by individuals, and see the Corporate Finance Manual (CFM11000 onwards SAIM20000) for more general guidance on derivative contracts.

Profits from transactions in derivatives by individuals are not taxable as savings and investment income. Nor are losses relievable (see also ITA07/S81 for the denial of sideways loss relief on dealings in commodity futures in partnership with a company). And ITTOIA05/S779 ensures that no liability arises under Chapter 8 of Part 5 of ITTOIA05 (miscellaneous income - income not otherwise charged) on commodity or financial futures or qualifying options. Instead profits from futures and options arising to an individual or trust, other than as part of a trade, are subject to the capital gains rules. See TCGA92/S143 and CG55400 onwards.

Guaranteed returns

There is however an exception for disposals of in futures and options that are disposals involving a ‘guaranteed return’. Contracts such as futures and options can be used by individuals and trusts to generate a guaranteed return which is in economic terms equivalent to interest but which is received as capital gains. Less tax may be payable where those gains are covered by capital losses, or by capital gains tax reliefs or exemptions. SAIM7030 gives an example of how such a return can be achieved.

Such returns are taxable as savings and investment income under Chapter 12 of Part 4 of ITTOIA05. This legislation was originally introduced by FA97 as ICTA88/SCH5AA. This provided for a Case VI charge on profits realised on or after 5 March 1997 from the futures or options concerned. The rules were extended in FA98 (SAIM7090).

For companies, with effect from accounting periods beginning on or after 1 October 2002, the provisions were superseded by the derivatives contracts regime (see CFM13405). The legislation at Schedule 5AA continued to apply to individuals and trusts, and has now been rewritten as part of Tax Law Rewrite. The charge to tax is now on savings and investment income under Chapter 12 of Part 4 of ITTOIA05, in sections 555 to 569.

Guaranteed returns from futures and options and disguised interest arrangements

The legislation on guaranteed returns from disposals of futures and options was repealed with effect from 6 April 2013. After that date, the types of arrangement previously falling within ITTOIA05/PT4/CH12 are caught by the legislation on ‘disguised interest’ in ITTOIA05/PT4/CH2A. See SAIM2700 onwards for more on disguised interest.

Transitional provisions

FA13/SCH12 provides that the disguised interest legislation applies to returns from such arrangements to which a person becomes party on or after 6 April 2013. This is subject to transitional rules that provide that where a person is party to arrangements before 6 April 2013 and those arrangements would have been within any of the provisions repealed as a consequence of the introduction of the new rules on disguised interest, returns arising from those arrangements on or after that date are taxable as disguised interest.