Corporation Tax Act 2009 sections 82–84

Existing assets representing creditor relationships: options

Sections 82–84 deal with the transitional rules for embedded derivatives that are options within existing creditor relationships, where the underlying asset is subject to pre-2005 loan relationship rules, and how disposal proceeds are adjusted for interest and exchange gains or losses.

• Where an embedded option would normally be separated from a creditor relationship but the asset is subject to transitional provisions under the old rules, the normal non-trading credit and debit rules for derivative contracts do not apply, and the asset is treated as a non-qualifying corporate bond for capital gains purposes.
• On disposal of the asset, the consideration is reduced by any interest that accrued under the loan relationship rules but was not actually paid or payable to the company as a consequence of the disposal.
• The disposal consideration is further adjusted by adding back any relevant exchange losses already recognised under the loan relationship rules, and then reducing (but not below nil) by any relevant exchange gains; any excess exchange gains reducing the consideration below nil are treated as incidental costs of disposal.
• Where the asset has been involved in a share reorganisation, the disposal rules apply to the new holding that replaced the original asset as a result of that reorganisation.