What happens for chargeable gains purposes when a contract ceases to be a derivative contract under section 662 CTA 2009?

Under section 662, when a relevant contract ceases to be a derivative contract, the company is treated as having acquired the contract immediately after that point for chargeable gains purposes. The deemed acquisition cost is the notional carrying value of the contract at the time it ceased to be a derivative contract, providing a clear base cost for future gains calculations.

What is the deemed acquisition cost under section 662 of the Corporation Tax Act 2009?

The deemed acquisition cost is the notional carrying value of the contract at the time it ceased to be a derivative contract. This value, defined in section 622(4), becomes the base cost for any future chargeable gains calculation when the company eventually disposes of the contract. This ensures no double taxation or tax gap arises on transition between regimes.

How do sections 622 and 662 of the Corporation Tax Act 2009 work together?

Section 622 treats the company as making a deemed disposal for derivative contracts purposes when the contract ceases to qualify. Section 662 then treats the company as making a deemed acquisition for chargeable gains purposes immediately after. Together they ensure the contract transitions smoothly from the derivative contracts regime to the chargeable gains regime with a clear base cost.

When might a contract cease to be a derivative contract while the company remains a party to it?

A contract may cease to qualify as a derivative contract where the nature of the contract changes or the company's circumstances alter, even though the company remains a party. In such cases, the contract exits the derivative contracts regime and section 662 ensures it enters the chargeable gains regime with the notional carrying value as its base cost.

Corporation Tax Act 2009 section 662

Contracts ceasing to be derivative contracts

Section 662 deals with what happens for chargeable gains purposes when a relevant contract that a company holds stops being a derivative contract.

When a relevant contract ceases to be a derivative contract, a deemed acquisition arises for chargeable gains purposes.
The company is treated as having acquired the contract immediately after it ceased to be a derivative contract.
The deemed acquisition cost is the notional carrying value of the contract at the time it ceased to be a derivative contract.
This section works alongside section 622, which deals with the deemed disposal of the same contract for derivative contract purposes at the same point in time.

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