IFM14230 | Taxation of investment trusts: Loan relationships and derivative contracts

For most companies the introduction of the loan relationships and derivative contracts regimes resulted in all profits and losses from loan relationships and derivative contracts being brought into account as income without making any distinction between capital and revenue items. To preserve the exemption from tax on capital profits for investment trusts, special rules apply.

Loan relationships

For loan relationships, these special rules are in section 395 CTA 2009. Paragraph 1 provides that capital profits, gains or losses arising to an approved investment trust from its creditor loan relationships may not be brought into account as credits and debits under the rules of the loan relationships regime.

Profits or losses of a capital nature are defined as those profits or losses that are accounted for through the capital column of the income statement in the company’s accounts in accordance with the AIC SORP or would have been accounted for in capital if the AIC SORP had been applied correctly.

Derivative contracts

For derivative contracts, these special rules are in section 637 CTA 2009.

Section 637 CTA 2009 provides that profits or losses of a capital nature arising to an investment trust from its derivative contracts must not be brought into account as credits and debits under the rules of the derivative contracts regime.

Profits or losses of a capital nature are defined as those profits or losses that are accounted for through the capital column of the income statement in the company’s accounts in accordance with the AIC SORP or would have been accounted for in capital if the AIC SORP had been applied correctly.