Schedule 2: Transitionals and savings Contracts which became derivative contracts on 28 July 2005
3552.This paragraph treats a relevant contract to which it applies as a derivative contract entered into by a company on 28 July 2005 and determines the value of the consideration given for the contract. It also brings into account as a chargeable gain or allowable loss when the company ceases to be a party to the contract the gain or loss latent in the contract at 28 July 2005. It is based on paragraph 4B(1), (2), (3) and (4) of Schedule 26 to FA 2002.
3553.The Finance Act 2002, Schedule 26, Parts 2 and 9 (Amendment No 2) Order 2005 (SI 2005/2082) extends the scope of the amendments made by SI 2005/646 to the “excluded property” rules (see section 589 (contracts excluded because of underlying subject matter: general)). See the comments on the amendment of the “excluded property” rules in connection with the preceding paragraph.
3554.A contract to which this paragraph applies is one that was not a derivative contract immediately before 28 July 2005 (although it was a “chargeable asset” at that point). But it would have been a derivative contract had an accounting period of the company begun on that date, that is, when the amendments made by SI 2005/2082 came into force. Because of the rule in this case, it is immaterial when the actual accounting period of the company began in which 28 July 2005 falls.
3555.The definition of “chargeable asset” in section 703 applies.
3556.Sub-paragraph (6) brings into account the chargeable gain or allowable loss latent in the contract at the time it is treated as becoming a derivative contract. It does so in the same way as the preceding paragraph with one exception. This is that the consideration for the disposal is equal to the fair value of the contract on 28 July 2005 (that is, the same figure as is taken to be the consideration for the deemed derivative contract in the subsequent application of Part 7 to the contract).