Income Tax (Trading and Other Income) Act 2005

When disposals involve guaranteed returnsU.K.

559When disposals involve guaranteed returnsU.K.

(1)For the purposes of this Chapter, a disposal of a future or option involves guaranteed returns if conditions A to C are met.

(2)Condition A is that the disposal is one of two or more related transactions (see section 566).

(3)Condition B is that those transactions are designed to produce a guaranteed return (see subsection (5)).

(4)Condition C is that the guaranteed return comprises—

(a)the return from the disposal (see section 561), or

(b)the return from a number of disposals of futures or options, of which the disposal is one, taken together.

(5)For the purposes of this Chapter, two or more related transactions are transactions designed to produce a guaranteed return if, taking them together, it would be reasonable to assume from one or more of the matters specified in subsection (6) that—

(a)the main purpose of the transactions is or was the production of a guaranteed return from one or more disposals of futures or options (see section 560), or

(b)that is or was one of their main purposes.

(6)Those matters are—

(a)the likely effect of the transactions,

(b)the circumstances in which the transactions are entered into, and

(c)the circumstances in which any one of the transactions is entered into.

(7)In the case of a transaction which is a disposal, the references in subsection (6) to entering into the transaction are references to making the disposal.

560Production of guaranteed returnsU.K.

(1)For the purposes of this Chapter, a guaranteed return is produced from a disposal of a future or option if risks from fluctuations in the underlying subject matter are so eliminated or reduced as to produce a return from the disposal that meets conditions A and B.

(2)If there is more than one such disposal, a guaranteed return is produced from them if, taking them together, such risks are so eliminated or reduced.

(3)Condition A is that the amount of the return is not to any significant extent attributable (otherwise than incidentally) to any such fluctuations.

(4)Condition B is that the return equates, in substance, to the return on an investment of money at interest.

(5)For the purposes of subsections (1) and (2), the cases where risks from fluctuations in the underlying subject matter are eliminated or reduced include any case where the main reason or one of the main reasons for the choice of that subject matter is—

(a)that there appears to be no risk that it will fluctuate, or

(b)that the risk that it will do so appears insignificant.

(6)In this section the references, in relation to a disposal of a future or option, to the underlying subject matter are references to, or to the value of, the commodities, currencies, shares, stock or securities, interest rates, indices or other matters—

(a)to which the future or option is referable, or

(b)to the value of which it is referable.

561The return from one or more disposalsU.K.

(1)In this Chapter, references to the return from one or more disposals are references to the return on investment represented by—

(a)the total net profits and gains arising from the disposal or disposals, or

(b)all but an insignificant part of those net profits and gains.

(2)For the purposes of subsection (1), if there are two or more disposals, it is to be assumed that profits and gains realised, and losses made, by persons who are associated with each other are all realised or made by the same person.

(3)For the purposes of subsection (2), persons are associated with each other in relation to any two or more disposals if conditions A to C are met.

(4)Condition A is that the disposals are made in pursuance of the same scheme or arrangements.

(5)Condition B is that each of the persons shares or is to share in the net return represented by the total of all the profits, gains and losses realised or made on the disposals.

(6)Condition C is that the extent of the persons' shares is determined for the purposes of, or in accordance with, the scheme or arrangements.

(7)For the purposes of this section—

(a)“scheme or arrangements” includes understandings of any kind, and

(b)it does not matter whether any scheme or arrangements are legally enforceable.