Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Derivatives definition

What does Derivatives mean? Derivatives are contracts used to transfer or manage risk, whose value is determined by an underlying asset, interest rate, currency, index, commodity, security or credit event. Common types include futures, options, swaps (interest rate and currency), forwards and credit derivatives (such as credit default swaps), traded on exchanges or over the counter. Legally, derivatives create payment or delivery obligations calculated by reference to the underlying. They are typically documented under an ISDA Master Agreement with a Credit Support Annex for collateral, and depend on close-out netting upon default. Key issues include counterparty capacity and authority, governing law and jurisdiction,...

UK corporation tax: chargeable gains treatment of derivative contracts under CTA 2009 Part 7—property-linked, embedded (debtor/creditor), convertibles and regime-transition rules

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Practice notes

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The general rule

As outlined in Practice Note: Taxation of Derivatives—the main Rules, a company’s Profits and losses from derivative contracts are, in the same way as the profits and losses on its loan relationships, ordinarily brought into account as income for corporation tax purposes. The legislative code for derivative contracts is set out in Part 7 of the Corporation Tax Act 2009 (CTA 2009), which this Practice Note refers to simply as Part 7. This Practice Note examines the particular situations where that general rule is disapplied, and where the profits and losses on a company’s derivative contracts are instead taken into account for corporation tax on a chargeable gains basis. Where derivative profits and losses are taxed on a chargeable gains basis, this does not of itself mean that:

the usual rules for computing corporation tax on chargeable gains apply, or
there is an actual or deemed disposal of the relevant derivative contract

Rather, the derivative contracts regime includes its own bespoke chargeable gains provisions within Part 7. Those provisions are located in Chapters 7–8 of that Part (CTA 2009, ss 639–673). There are several different categories of chargeable gains basis rules contained in Part 7...

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Web page updated on 21/05/2026

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