Income Tax (Trading and Other Income) Act 2005

When disposals of futures and options occurU.K.

562When disposals of futures and options occur: generalU.K.

(1)Any question whether there is a disposal for the purposes of this Chapter, or as to when such a disposal is made, is to be determined—

(a)in accordance with sections 143(5) and (6), 144 and 144A of TCGA 1992 (closing out and settlement of futures contracts and rules in relation to options),

(b)otherwise in accordance with the provisions having effect for determining for the purposes of TCGA 1992 whether or when an asset has been disposed of, and

(c)on assumptions A to C.

(2)Assumption A is that all futures are assets for the purposes of TCGA 1992.

(3)Assumption B is that the words “in the course of dealing in commodity or financial futures” are omitted from section 143(5) and (6) of TCGA 1992 in each place where they occur.

(4)Assumption C is that any reference in TCGA 1992 to a financial option within the meaning given by section 144(8) of that Act is a reference to any option that at the time of the disposal in question is not listed on a recognised stock exchange or recognised futures exchange (regardless of whether the conditions in section 144(8)(c)(i) to (iv) of that Act are met).

(5)Subsection (1) is subject to section 563 (timing of certain grants of options where related disposals occur later), and see also section 564 (deemed disposal where futures run to delivery or options are exercised).

563Timing of certain grants of options where related disposals occur laterU.K.

(1)For the purpose of this Chapter, a disposal consisting in the grant of an option (“the grant”) is treated as taking place at a later time than it would be taken as occurring under section 562 if conditions A to C are met.

(2)Condition A is that the grant is one of a number of related transactions designed to produce a guaranteed return.

(3)Condition B is that at least one of the other transactions is a transaction entered into after the grant.

(4)Condition C is that one or more of the transactions entered into after the grant is a disposal which is not itself the grant of an option.

(5)The grant is treated as taking place when the first such later disposal takes place.

(6)Subsection (5) does not apply in any case where, by applying sections 144(2) and 144A(2) of TCGA 1992, section 562(1)—

(a)requires the grant of an option and the transaction entered into by the grantor in fulfilment of the grantor's obligations under the option to be treated as a single transaction, or

(b)determines when such a single transaction is to be treated as entered into,

and that requirement or determination has a different effect from subsection (5).

564Deemed disposal where futures run to delivery or options are exercisedU.K.

(1)This section applies if there are two or more related transactions (see section 566) in relation to which conditions A and B are met.

(2)Condition A is that one of the transactions is the creation or acquisition (by the making or receiving of a grant or otherwise) of a future or option.

(3)Condition B is that the other transaction or one of the other transactions—

(a)is the running of the future to delivery or the exercise of the option, and

(b)is not treated for the purposes of this Chapter as a disposal of a future or option.

(4)In relation to the parties to the future or option, this Chapter applies as if—

(a)a disposal of the future or option takes place at the time (“the relevant time”) immediately before the future runs to delivery or, as the case may be, the option is exercised, and

(b)the scheme or arrangements by reference to which the transactions are related transactions provide for the disposal.

(5)In the case of a person whose rights and entitlements under the future or option have a market value at the relevant time, the disposal referred to in subsection (4)(a) is taken to be for a consideration equal to that market value.

(6)In the case of any other party to the future or option (“P”), the disposal is taken—

(a)to be made for a nil consideration, and

(b)to involve P in incurring costs equal to the release amount.

(7)In subsection (6) “the release amount” means the amount which P might reasonably have been expected to pay, in a transaction at arm's length entered into at the relevant time, for the release of P's obligations and liabilities under the future or option.

(8)Section 144(2) and (3) of TCGA 1992 are ignored for the purposes of subsections (1) to (3).

565Interpretation of section 564U.K.

(1)References in section 564 to the running of a future to delivery are references to performing (and so discharging) the obligations owed under the commodity or financial futures contract in question to the party to the future whose rights as a party relate to the underlying subject matter.

(2)In subsection (1) the reference to the underlying subject matter is a reference to, or to the value of, the commodities, currencies, shares, stock or securities, interest rates, indices or other matters—

(a)to which the future is referable, or

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

(3)In section 564 and this section “party”, in relation to a future or option, means one of the persons who—

(a)has any right or entitlement comprised in or arising under the future or option, or

(b)is subject to any obligation or liability so comprised or arising.

(4)In section 564 “market value” has the same meaning as in TCGA 1992 (see sections 272 to 274).

566When transactions are relatedU.K.

(1)For the purposes of this Chapter, two or more transactions are related if all of them are entered into in pursuance of the same scheme or arrangements.

(2)For this purpose the cases where any two or more transactions are to be taken to be entered into in pursuance of the same scheme or arrangements include any case where it would be reasonable to assume from one or more of the matters specified in subsection (3) that none of them would have been entered into independently of the others.

(3)The 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.

(4)Nothing in this Chapter prevents transactions from being related transactions just because they are transactions—

(a)with different parties, or

(b)with parties different from the parties to the scheme or arrangements in pursuance of which they are entered into.

(5)In the case of a transaction which is a disposal, the references in this section to entering into the transaction are references to making the disposal.

(6)In this section “scheme or arrangements” includes schemes, arrangements and understandings of any kind, whether or not they are legally enforceable.