FA 2010 analysis – Risk transfer schemes

Speed Read: Groups can hedge financial risks, such as foreign exchange risk, in a number of ways. One of these is to 'gross up' the hedging instrument, such that the gain/loss on that instrument is subject to tax, and the after-tax position is equal to the untaxed gain/loss on the hedged item. This exposes the Exchequer to risk through volatile tax receipts, but can enable groups to access financial benefits, eg through increased borrowings in low interest rate currencies. FA 2010 Sch 16 provides that where certain conditions are satisfied, losses are allowable only to the extent that gains from the arrangements have been, or are in future, taxed.