Derivative contracts—taxation on chargeable gains basis: issuers
Derivative contracts—taxation on chargeable gains basis: issuers

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Derivative contracts—taxation on chargeable gains basis: issuers
  • Derivative contracts taxed on a chargeable gains basis—debtor loan relationships with embedded derivatives
  • Deemed options
  • Deemed options—exercise of option
  • Deemed options—exercise of option: convertibles
  • Deemed options—exercise of option: exchangeables
  • Deemed options—cash settlement
  • Deemed options—lapse
  • Deemed contract for differences
  • Plain vanilla convertibles—embedded derivative equity instruments

The profits and losses arising to a company from its derivative contracts are, like its profits and losses from its loan relationships, generally brought into account for the purposes of corporation tax as income.

There are, however, unlike under the loan relationships regime, a number of specific circumstances where this basic rule will not apply. In such circumstances, the income, profits, gains (and losses) arising in respect of a company's derivative contracts will instead be brought into account on a chargeable gains basis.

The derivative contracts regime contains its own specialist chargeable gains provisions. The special rules which tax derivative contracts on a chargeable gains basis are set out in:

  1. Chapter 7 (Chargeable gains arising in relation to derivative contracts), and

  2. Chapter 8 (Further provision about chargeable gains and derivative contracts)

of Part 7 of the Corporation Tax Act 2009 (CTA 2009).

In some cases (but by no means all) the disapplication of the general (income based) rules effectively excludes the derivative in question from the derivative contracts regime altogether. The types of derivative contracts embedded in a host debtor loan relationship, treated as having been issued by the debtor company, the taxation of which is discussed in this Practice Note, are examples of where this is the case.

In such cases, the accrual of credits and debits reflecting the fair value changes in