HMRC has issued regulations to ensure that the tax treatment of gains and losses on derivative contracts used to hedge currency risks on acquisitions and disposals of shares aligns with the treatment of the shares.
The Disregard and Bringing into Account of Profit and Losses on Derivative Contracts Hedging Acquisitions and Disposals of Shares Regulations, SI 2022/239, bring certain derivative contracts entered into on or after 1 April 2022 within the scope of the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations, SI 2004/3256, and amend the Exchange Gains and Losses (Bringing into Account Gains or Losses) Regulations, SI 2002/1970 to allow certain debits and credits from currency derivative contracts to be brought back into account for corporation tax purposes.
The consultation on the tax treatment of asset holding companies revealed that current tax rules can lead to a mismatch in tax treatment when derivative contracts are entered into to hedge currency risks on acquisitions and disposals of shares. Consequently, the UK government announced that it was examining the possibility of legislating to ensure that the treatment of gains and losses on the hedging instrument are aligned with the treatment of the shares (the hedged item). These regulations introduce rules which have that effect, and will apply to all companies, not just asset holding companies.
The new rules will apply to certain hedging instruments entered on or after 1 April 2022 which hedge the foreign currency risk on a forecast transaction or firm commitment relating to an anticipated future acquisition or disposal of shares. The profits and losses arising from such derivatives will be disregarded throughout the lifetime of the hedging instrument while there is a relevant hedging relationship.
HMRC has issued regulations to ensure that the tax treatment of gains and losses on derivative contracts used to hedge currency risks on acquisitions and disposals of shares aligns with the treatment of the shares.
The Disregard and Bringing into Account of Profit and Losses on Derivative Contracts Hedging Acquisitions and Disposals of Shares Regulations, SI 2022/239, bring certain derivative contracts entered into on or after 1 April 2022 within the scope of the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations, SI 2004/3256, and amend the Exchange Gains and Losses (Bringing into Account Gains or Losses) Regulations, SI 2002/1970 to allow certain debits and credits from currency derivative contracts to be brought back into account for corporation tax purposes.
The consultation on the tax treatment of asset holding companies revealed that current tax rules can lead to a mismatch in tax treatment when derivative contracts are entered into to hedge currency risks on acquisitions and disposals of shares. Consequently, the UK government announced that it was examining the possibility of legislating to ensure that the treatment of gains and losses on the hedging instrument are aligned with the treatment of the shares (the hedged item). These regulations introduce rules which have that effect, and will apply to all companies, not just asset holding companies.
The new rules will apply to certain hedging instruments entered on or after 1 April 2022 which hedge the foreign currency risk on a forecast transaction or firm commitment relating to an anticipated future acquisition or disposal of shares. The profits and losses arising from such derivatives will be disregarded throughout the lifetime of the hedging instrument while there is a relevant hedging relationship.
