Part 6Relationships treated as loan relationships etc
Chapter 3OEICs, unit trusts and offshore funds
The qualifying investments test
496Meaning of “hedging relationship”
1
For the purposes of section 494, in relation to an open-ended investment company, a unit trust scheme or an offshore fund, there is a hedging relationship between a derivative contract (“the hedging instrument”) and an asset (“the hedged item”) so far as condition A or B is met.
2
Condition A is that the hedging instrument and the hedged item are designated as a hedge by the company, scheme or fund.
3
Condition B is that the hedging instrument is intended to act as a hedge of exposure to changes in fair value of a hedged item which is—
a
a recognised asset which could affect the total net return of the company, scheme or fund, or
b
an identified part of such an asset which is attributable to a particular risk.
4
For the purposes of subsection (3) “the total net return” of a company, scheme or fund means its total net return calculated—
a
in accordance with generally accepted accounting practice, or
b
in the case of accounts prepared in a jurisdiction outside the United Kingdom, in accordance with generally accepted accounting practice in that jurisdiction.