Corporation Tax Act 2009 section 658

Disapplication of section 658 for pre-2005 derivative contracts

Section 658, which treats certain derivative contracts as giving rise to chargeable gains or allowable losses, is disapplied where the underlying debtor relationship existed before 1 January 2005, and this paragraph also explains the consequential treatment of related credits and debits.

• Section 658 (chargeable gain or allowable loss on derivative contracts) does not apply where the company held the liability representing the debtor relationship immediately before its first accounting period beginning on or after 1 January 2005.
• This protects pre-existing derivative contracts linked to debtor relationships from being brought into the chargeable gains regime that section 658 would otherwise impose.
• Where section 658 is disapplied by this transitional rule, the related credits and debits arising under section 595 are also excluded from the non-trading loan relationships rules in section 574.
• The effect is that these older derivative contracts continue to be taxed under the rules that applied before the 1 January 2005 regime change, rather than being subject to the newer chargeable gains treatment.