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Income Tax (Trading and Other Income) Act 2005

Section 148B Deemed disposals at a gain under section 564(4) of ITTOIA 2005

3488.Section 564 (deemed disposal where futures run to delivery or options are exercised) deems a disposal to take place immediately before a future runs to delivery or an option is exercised. Eventually the asset acquired under that future or option may itself be sold for a capital gain. Any gain on that disposal will, under the TCGA rules, include that part of the gain that has already been taxed under Chapter 12 of Part 4 of this Act as a result of the deemed disposal. This new section of TCGA provides rules to prevent that double taxation by excluding that element of the gain from the chargeable gain. It is based on paragraph 4A of Schedule 5AA to ICTA.

3489.Subsection (2) provides for the rules in sections 37 and 39 of TCGA to be disregarded. These sections prevent an amount taxed as income from being included in the disposal proceeds of an asset or sums deductible in an income tax computation from being deductible against the capital gains computation.

3490.Subsection (4) prevents indexation allowance being added to the increase in the acquisition cost made under subsection (3). This is because that adjustment is a notional adjustment only and not actual expenditure.

3491.Subsection (6) provides for the grant of an option and its deemed disposal to be treated as a single acquisition for the purposes of adjusting the capital gains computation under subsections (3) to (5). Treatment as a single acquisition allows the premium received by the grantor of the option to be taken into account in calculating the consideration for acquisition of the asset. Section 144 of TCGA, which applies by virtue of section 562 (when disposals of futures or options occur: general), performs the same service for disposals under Chapter 12 of Part 4 of this Act other than deemed disposals (see commentary on section 563 (timing of certain grants of options where related disposals occur later)). This subsection is needed because deemed disposals under section 564 (deemed disposals where futures run to delivery or options are exercised) are not disposals for the purposes of section 144 of TCGA.

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