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HMRC internal manual

Savings and Investment Manual

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Artificial transactions in futures and options: when do disposals involve ‘guaranteed returns’? (this guidance applies to disposals of futures and options before 6 April 2013)

Conditions for disposals involving guaranteed returns

ITTOIA05/S559 specifies three conditions that must be met for the disposal to involve a guaranteed return.

Condition A is that the disposal must be one of two or more ‘related transactions’.

ITTOIA05/S566 explains what is meant by related transactions. Transactions are related if all of them are entered into in pursuance of the same ‘scheme or arrangement’. This means any case where it would be reasonable to assume that none of them would have been entered into separately, having regard to the likely effect of the transactions and the circumstances in which they were entered into.

Related transactions include transactions between different parties, who may be different to the parties who entered into the scheme.

‘Scheme or arrangement’ includes ‘understandings of any kind, whether or not they are legally enforceable’.

‘Designed to produce a guaranteed return’

Condition B is that those transactions must be designed to produce a guaranteed return.

ITTOIA05/S559 (5) explains what is meant by ‘designed to produce a guaranteed return’. Considering the transactions together the likely effect of the transactions and the circumstances in which they were entered into, it must be reasonable to assume that the main purpose or one of the main purposes is to produce a guaranteed return from one or more disposal of futures or options.

‘Guaranteed return’ is defined in ITTOIA05/S560 (SAIM7060).

The return from one or more disposals

Condition C is that the guaranteed return comprises the return from the disposal, or the return from a number of disposals, of which the disposal is one, taken together (see SAIM7070).

‘Entering into a transaction’ includes making the disposal.