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HMRC will incorporate within its Business Income Manual
guidance on the tax treatment of financial derivative transactions. Although
the guidance derives from discussions with the IMA and the asset management
industry, it is intended to constitute generic guidance applying to
financial derivatives in whatever context they are used. Nevertheless, it is
stressed that the guidance will not colour the HMRC view of the distinction
between trading and investment in the wider context of a commercial
activity, or activities, as a whole.
The guidance sets out the following principles. Financial transactions
include the acquisition, holding, disposal and dealings in respect of
financial assets such as shares and bonds, together with “synthetic”
positions in relation to such instruments. HMRC consider that there is no
conceptual difference between a real and a synthetic position, and accept
that:
- shorting
is conceptually the same as long positions;
-
derivatives that give exposure to part of an asset are conceptually the
same as derivatives that give exposure to the whole; and, finally,
-
multi-derivative or hybrid strategies should not be unbundled.
In HMRC’s view, none of these intrinsically entail
trading. The three approaches may constitute investments per se, or may form
part of an investment strategy.
Our view
The guidance is aimed primarily at UK and offshore funds, the tax
treatment of which depends on trading or investment status. It is
consistent with the recent redraft of Statement of Practice 1/01
regarding the Investment Manager Exemption.
Whilst clarification of HMRC's views in this area is helpful, the
guidance is not a panacea and developments in the financial markets are
likely to continue to create uncertainty for fund promoters. |
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