What does section 643 of the Corporation Tax Act 2009 do?

Section 643 identifies derivative contracts linked to land or tangible movable property (excluding commodities) that are taxed under the chargeable gains regime in section 641, rather than under the normal derivative contract rules. Four conditions relating to subject matter, trading purpose, excluded bodies, and connected persons must all be satisfied.

What are the four conditions that must be met under section 643 CTA 2009?

Condition A requires the underlying subject matter to be land or tangible movable property other than commodities. Condition B requires the contract not to be held for trading purposes. Condition C requires the company not to be an excluded body such as a collective investment scheme. Condition D requires no connected persons among the parties.

What happens if a company holds a land-linked derivative contract for the purposes of its trade?

If a company holds the derivative contract for the purposes of a trade it carries on during the accounting period, Condition B is not met and section 643 does not apply. The derivative contract would instead be taxed under the ordinary derivative contract rules as normal trading or non-trading income rather than under the chargeable gains regime.

How does section 643 interact with income derived from the underlying property?

Where the underlying subject matter of a derivative contract includes income derived from land or tangible movable property, such as rental income, section 644 contains an additional rule modifying what the underlying subject matter is taken to consist of. This ensures the correct tax treatment applies when income streams are bundled into the contract alongside the property.

Corporation Tax Act 2009 section 643

Contracts relating to land or certain tangible movable property

Section 643 identifies which derivative contracts linked to land or tangible movable property fall within the chargeable gains regime rather than being taxed under normal derivative contract rules.

The derivative contract must have land or tangible movable property (excluding commodities) as its underlying subject matter
The company must not hold the derivative contract for the purposes of a trade it carries on
The company must not be an "excluded body", which broadly means certain types of collective investment scheme
No two or more parties to the derivative contract may be connected persons

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