CFM83120 - Old rules: derivative contracts: qualified exclusions: transactions covered

Transactions covered by the legislation

This guidance applies to periods of account beginning before 1 January 2005, or beginning after that date and ending before 16 March 2005

The legislation covers relevant contracts (futures, options or contracts for differences) and associated transactions. The relevant contracts within the scope of the Para 6 were contracts whose underlying subject matter consisted wholly of

  • shares in a company (including an open-ended investment company)
  • rights of a unit holder in a unit trust scheme, or
  • for accounting periods beginning before 1 January 2005 only, assets representing loan relationships falling within FA96/S92 (convertibles and exchangeable) or FA96/S93 (asset-linked securities where the asset is land or listed shares). These were securities where any gain was within the CG rules.

These subject matters can be referred to collectively as Para 6(2) subject matters. When deciding whether the underlying subject matter of a contract consists wholly of Para 6(2) subject matters, Para 6(10) provides that you first apply FA02/SCH26/PARA9 to exclude any ‘small’ or ‘subordinate’ matters - see CFM50580.

Contracts must also have satisfied the condition in Para 6(3) in order for the qualification in Para 6 to apply. Either

  • the relevant contract was designed by itself to produce a guaranteed return (the single contract case), or
  • the relevant contract taken together with any or all of the following associated transactions
    • one or more other contracts whose underlying subject matter consisted of a FA02/SCH26/PARA6(2) subject matter
    • one or more FA96/S92 or 93 securities (or, for accounting periods beginning on or after 1 January 2005, securities that have been bifurcated into a loan relationship and an embedded equity derivative)
    • for accounting periods beginning before 1 January 2005, one or more loan relationships to which FA96/S93A applied (see CFM82470)

    was designed to produce a guaranteed return. CFM83130 explains what is meant by a guaranteed return.

FA02/SCH26/PARA10 described the circumstances in which you could have regarded two or more transactions undertaken by a company as associated transactions - see CFM83150 for details.