Income Tax Act 2007 section 809FZI

Hedging: interest rates

Section 809FZI sets out how interest rate hedging arrangements are treated within investment schemes for the purposes of the carried interest rules, ensuring that genuine hedging activity does not inadvertently trigger disposal events or count as separate investments.

• Where an investment scheme hedges interest rate exposure on a qualifying investment, the interest rate contract is not treated as a separate investment of the scheme
• Entering into a hedging relationship does not trigger a deemed disposal of the underlying hedged investment
• If the hedging relationship ends but the interest rate contract continues, the contract is then treated as a new investment made by the scheme
• Qualifying investments that can be hedged include money placed at interest, securities (excluding company shares), alternative finance arrangements, and liabilities representing loan relationships