REV BN 7: Towards A New Regime For Property Derivatives

Who is likely to be affected?

1. All companies within the scope of corporation tax.

General description of the measure

2. The measure enables regulations to be made to adapt the derivative contracts legislation to provide a comprehensive regime to deal with some derivatives that are currently excluded because they derive their value from property or equities. Subject to satisfactory outcome of consultation on the scope and detail, regulations will be made setting out how they can be included. In order to ensure early progress on property derivatives, these regulations will not cover equity derivatives.

3. Draft regulations will be published shortly on the Inland Revenue internet site. Comments will be invited on this draft, which reflects discussions with industry following publication of illustrative drafts at Pre-Budget Report, showing how a scheme might work.

Current law and proposed revisions

4. At present property derivatives are outside the derivative contracts regime in Finance Act 2002.

5. The scheme proposed for property derivatives would have the following characteristics:

• It would use the mechanics of the derivative contracts legislation to identify and quantify the gain or loss arising on a property derivative.
• The resulting gain or loss would be treated as a chargeable gain for tax purposes, unless the company is party to it for the purposes of its trade.
• If the company is party to it for the purposes of its trade, the profit or loss would be brought into account in the same way as amounts from derivative contracts that are currently within the regime.
• The new rules would apply to contracts entered into on or after the date the regulations come into effect. This will depend on when the Finance Act receives Royal Assent, as the regulations cannot be made before then.

Further advice

6. If you have any questions about this change, please contact Sue Davies on 020 7438 7010.

www.inlandrevenue.gov.uk