Commentary

D1.820 Underlying subject matter of derivatives—exclusions

Corporate tax
Corporate tax | Commentary

D1.820 Underlying subject matter of derivatives—exclusions

Corporate tax | Commentary

Derivative contracts—underlying subject matter: exclusions

D1.820 Underlying subject matter of derivatives—exclusions

Where a contract was entered into before 1 August 2004 in an accounting period ending after 16 September 2004, it was (and remains) excluded from the derivative contracts legislation where its underlying subject matter consists of land (wherever situated) or tangible movable property (other than commodities which are tangible assets). Such contracts are taxed instead on a chargeable gains basis (see D1.883)1.

An interest rate is not regarded as an underlying subject matter just because the contract specifies that settlement can be made on a variable date and that the amount of the payment will vary by a rate of interest according to the date it is made2.

Excluded contracts

A derivative contract that satisfies the accounting test (see D1.815) will only fall outside the derivative contracts legislation where the derivative contract:

  1.  

    •     is an option or a future and the underlying subject matter of that contract is intangible fixed assets3. An intangible fixed asset has the meaning adopted for accounting purposes. It includes goodwill and intellectual property such as patents, know-how, trade marks, registered designs, computer software and telecommunications rights provided that they are created or acquired for continuing use in a business4.

  2.  

    An option or a future which has an intangible fixed asset as its underlying subject matter is thus

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