CFM37710 - Loan relationships: 'hybrid' securities with embedded derivatives: pre 1 January 2005 asset-linked securities - issuers

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SI2004/3256 Reg 12

Asset-linked securities issued in periods beginning before 1 January 2005

For issuers of an asset-linked security (apart from banks and other financial concerns issuing such securities for trade purposes), under the former rules in FA96/S93 the only amount brought in for tax purposes was interest payable in respect of the security. All other gains and losses, including exchange differences, were in effect tax nothings.

Regulation 12 of the Disregard Regulations applies to such debtor loan relationships to which a company was party immediately before the start of its first accounting period to begin on or after 1 January 2005, except where the company became party to the relationship in the ordinary course of a banking or security dealing business.

The only debits that are allowed are those relating to interest (ascertained without reference to an effective interest rate method). Transitional adjustments are similarly disregarded (with regulation 12(3) of the Disregard Regulations applying to loan relationships amounts, and regulation 3C(2)(aa) of the Change of Accounting Practice Regulations to their derivative contract counterparts) - see CFM37680.

No credits or debits are brought into account on the ‘embedded derivative’ component - see CFM55540.