Corporation Tax Act 2009 section 660

Contract relating to holding in OEIC, unit trust or offshore fund

Section 660 deals with the tax treatment of any latent gain or loss that has built up in a relevant contract before it becomes treated as a derivative contract because the underlying collective investment scheme fails a qualifying investments test.

• When a relevant contract linked to an OEIC, unit trust or offshore fund becomes treated as a derivative contract under section 587, any unrealised gain or loss that existed immediately before that change of treatment must eventually be brought into account.
• The gain or loss is calculated as if the company had disposed of the contract immediately before the start of the accounting period in which section 587 first applies, for consideration equal to the value shown in the company's accounts at the end of the preceding period.
• This deemed chargeable gain or allowable loss is not recognised immediately — instead, it is deferred and only brought into account in the accounting period in which the company actually ceases to be a party to the contract.
• The section only applies where the contract was a chargeable asset immediately before the derivative contract treatment began — meaning an asset whose disposal would give rise to a chargeable gain for corporation tax purposes.