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CG56004 | Futures: income or CG: CG treatment

From HM Revenue & Customs · Capital Gains Manual

Specific legislation provides that certain disposals which would have been dealt with under the capital gains rules are instead to give rise to income profits or losses. This applies:

  • for Corporation Tax purposes only, where the futures fall within the legislation in Part 7 CTA09 (Derivative Contracts). (Or previously, within the legislation in FA02 (Derivative Contracts), or FA94 (Financial Instruments)). See CFM50000+. or

  • in cases where schemes or arrangements involving the use of futures or/and options are designed to give a guaranteed return, see Chapter 12 Part 4 ITTOIA05 and CG56200. (Or previously ICTA88/Sch5AA, which applied also for Corporation Tax until such options and futures were brought within the FA02 rules for derivative contracts.)

The Capital Gains treatment of futures is dealt with in TCGA92/S143. The section has two functions.

1. The legislation now at Section 143(1) and ITTOIA05/S779 (CTA09/S981 for Corporation Tax) was introduced to prevent any argument that, if transactions in options and futures did not amount to trading, liability might nonetheless arise under Chapter 8 of Part 5 ITTOIA05 (Chapter 8 of Part 10 CTA09) as miscellaneous income. It applies to

  • commodity and financial futures dealt in on a recognised futures exchange, Section 143(2), see CG56021. See CG56120 for a list of recognised futures exchanges,

  • over-the-counter futures as defined in Section 143(3), see CG56027.

It is a question of fact whether transactions in futures themselves amount to a trade. Individuals in particular are unlikely to carry on a trade of dealing in futures. Transactions may however be entered into which are ancillary to trading transactions on revenue account. Cases of doubt or difficulty should be referred to CT&BIT (Financial Trading), see BIM56800 onwards.

Profits from transactions in commodity and financial futures dealt in on a futures exchange which is not recognised will be liable to tax as income if the transactions do not amount to trading.

2. Section 143(5)-(7) provide a computational regime for dealing with futures that are closed out or where obligations under the contract are fully or partially settled by the making of a payment.

There are no special rules for futures which are settled by delivery of the underlying asset. The transaction is treated as an acquisition/disposal of the asset under a contract.