Revenue Note for Guidance
This section provides for the exemption from capital gains tax of Government and certain other public securities. In addition, future contracts which are based on such securities are also exempt provided that the delivery of the security is an unconditional requirement of the contract.
Profits and losses on all futures contracts are calculated by reference to the market value of the underlying gilt.
(1) The following are not chargeable assets —
A gain on the disposal of any of the above assets is not a chargeable gain and, consequently, a loss on such a disposal is not an allowable loss.
(2)(a) All future contracts which —
are not chargeable assets.
(2)(b) In the case of a futures contract dealt in or quoted on a stock exchange or futures exchange, the requirement that the security be delivered will be met if the person by whom the contract is made closes out the contract by entering into a reciprocal and opposite contract on the exchange and settles through the exchange on a net payment or receipt basis.
(2)(c) Where a profit or loss on a futures contract is calculated, directly or indirectly, by reference to the acquisition cost or disposal proceeds of an instrument to which subparagraph (i) of subsection (2)(a) applies —
For example, a person contracts to sell a given amount of a specified security on a specified day. Before the specified day he enters into a second contract to buy the same amount of the specified security on the same specified day. Instead of the person completing both deals separately, the exchange will net off the contracts and make a payment to the person if he has made a net profit on both transactions. In the event of a net loss, he will make a payment through the exchange.
Relevant Date: Finance Act 2021