Introduction Overview Chapter 2: Matters which are distributions Section 1012: Hedging arrangements
2996.This section provides the second exception to section 1008. It disapplies section 1008 if there are “hedging arrangements” in place. It is based on section 209B(1) and (3) of ICTA.
2997.Section 1012 takes effect either from the time when the hedging arrangements come into effect, or from a later time in relation to earlier hedging arrangements (but only if those arrangements were in place on or after 17 April 2002). An example of the latter is where a distribution in respect of a security did not initially fall within paragraph E in section 1000, but did so subsequently and there were hedging arrangements in place before the distribution fell within paragraph E.
2998.At any time when section 1012 takes effect, paragraph E in section 1000 operates from that time as if the adjustment under section 1008, increasing the principal secured to the consideration given on issue, had not been made.
2999.For example, a security with principal secured of £100 is issued for £120. Section 1008 would normally deem the principal secured to be increased to £120, and the return would be evaluated against that amount for the purposes of paragraph E in section 1000. If hedging arrangements are subsequently put in place, the principal secured from that point onwards is £100.
3000.The definition of “hedging arrangements” is in section 1014.