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HMRC internal manual

Savings and Investment Manual

Artificial transactions in futures and options: what is a ‘guaranteed return’? (this guidance applies to disposals of futures and options before 6 April 2013)

A guaranteed return is like interest

In many cases, for example, in the case of a box spread (see SAIM7030) the exact return from the investment in the future or option will be known at the outset. Other schemes may produce a return that varies only slightly with fluctuations in the value of the underlying subject matter. The legislation aims to catch cases where the return on the investment is predictable and has more similarity to interest than to the risk expected on a future or option.

ITTOIA05/S560 explains what is meant by producing a guaranteed return from the disposal (or disposals) of futures or options. A guaranteed return as one where the risks from fluctuations in the underlying subject matter are eliminated or reduced so that

  • the amount of the returns is not to any significant extent attributable to any such fluctuations, and
  • is substantially the same as interest.

The elimination or reduction of risk includes those cases where the subject matter is chosen because it will be liable only to minimum fluctuation.

The term ‘to any significant extent’ is not defined in the legislation.

Underlying subject matter here means the commodities, currencies, shares, stocks or securities, interest rates, indices or other matter to which the future or option refers.