SAIM7020 - Artificial transactions in futures and options: outline of the legislation (this guidance applies to disposals of futures and options before 6 April 2013)

Outline of the legislation

The charge to tax on the disposal of futures and options involving guaranteed returns under Chapter 12 of Part 4 of ITTOIA05 is set out in ITTOIA05/S555. ITTOIA05/S555 (2) treats those profits and gains as income, even if they would otherwise be taxed as a capital item. TCGA92/S148A ensures that there is no double charge under both Chapter 12 and under TCGA.

ITTOIA05/S556 taxes the ‘full amount’ of the profits or gains arising in the tax year from a ‘disposal’ of a future or option. In most cases the quantum of the profits will be the difference between the disposal proceeds and the acquisition cost of the future or option. Not all transactions in futures or options are disposals.

ITTOIA05/S557 states that the person liable is the person realising the profits or gains.

The remaining sections of Chapter 12 explain:

  • what is a future or option - section 558 (SAIM7040)
  • when disposals involve ‘guaranteed returns’ - sections 559 to 561 (SAIM7050 to SAIM7070).
  • when a disposal takes place - sections 562 to 566 (SAIM7080 to SAIM7110).

Sections 567 to 569 deal respectively with losses (SAIM7120), trusts (SAIM7130), and the transfer of assets abroad (SAIM7140).