Explanatory note

This Order amends Parts 2, 8 and 9 of Schedule 26 (derivative contracts) to the Finance Act 2002 (c. 23).

Article 1 provides for the citation, commencement and effect of the Order.

Article 2 introduces the amendments to Part 2 which are made by articles 3 to 9. The effect of these amendments is to restrict the cases of relevant contract whose underlying subject matter is of shares or rights of a unit holder under a unit trust scheme which are prevented from being derivative contracts. A transitional provision is introduced in relation to contracts which become derivative contracts in consequence of this Order.

Article 10 introduces the amendments made to Part 8 which are consequential amendments made by articles 11 and 12.

Article 13 introduces the amendments to Part 9 which are made by articles 14 to 20. These make consequential amendments and insert a new provision to clarify the tax treatment in relation to host contracts and embedded derivatives where the underlying subject matter is of shares or rights of a unit holder under a unit trust scheme.

This Order does impose new costs on business and is expected to have significant Exchequer impact by closing avoidance schemes that would otherwise have cost substantial amounts in terms of tax yield and by protecting revenues in the future.