Corporation Tax Act 2009 section 668

Shares acquired on running of future to delivery

Section 668 deals with how to calculate the chargeable gain when a company takes delivery of shares under a plain vanilla futures contract and subsequently disposes of those shares.

• When a company receives shares through delivery under a plain vanilla futures contract, the acquisition cost of those shares for chargeable gains purposes is adjusted by the net gains or losses already recognised on the derivative contract.
• If cumulative gains (G) exceed cumulative losses (L) on the derivative contract, the allowable acquisition cost of the shares is increased by that excess; if losses exceed gains, the acquisition cost is reduced accordingly.
• If the reduction to acquisition cost exceeds the acquisition cost itself (i.e. the cost cannot be reduced below zero), the surplus amount is instead added to the disposal proceeds when calculating the chargeable gain.
• The part disposal rules apply in the same adjusted manner where only some of the delivered shares are disposed of.