»Ê¹ÚÌåÓýapp

Under the FOREX rules before FA2002 exchange gains or losses on a qualifying liability, or obligation to pay under a currency contract, could be `matchedâ€� with certain non-monetary assets (that is, assets outside the FOREX rules). See CT13663 and CG44060. »Ê¹ÚÌåÓýapp purpose of matching was that, where assets denominated in foreign currency were matched by a foreign currency liability, the gains or losses on exchange rate movements would be netted off for tax purposes.

For accounting periods beginning on or after 1 April 2002, there have been some alterations to the matching rules. »Ê¹ÚÌåÓýapp main change is that matching is now mandatory, rather than by election. Detailed guidance on matching is at CFM9300+.

»Ê¹ÚÌåÓýapp rules for bringing FOREX debits and credits on matched liabilities into account are at SI 2002/1970. When a foreign currency liability is matched with an asset, the FOREX credits and debits are not brought into account immediately for tax purposes. Instead, they are held over until there is a disposal of the matched asset. At that time, the FOREX gains and losses which have been held over are brought together to produce a net gain or loss. »Ê¹ÚÌåÓýapp treatment then depends upon the nature of the matched asset. If that asset is:

• a loan relationship which is a QCB for the purposes of TCGA92, or a ship or aircraft, the net gain or loss is treated as a credit or debit within the loan relationship regime in the accounting period of disposal of the matched asset (SI2002/1970 Reg 6);
• shares or assets related to shares where a gain on disposal would be exempt under TCGA92/SCH7AC (the substantial shareholdings exemption), any net gain is not chargeable, and any net loss is not allowable (SI2002/1970 Reg 4(2));
• any other matched asset, the net gain is chargeable, or loss allowable, under the CG code for the accounting period of disposal of the matched asset (SI2002/1970 Reg 4(1)).

»Ê¹ÚÌåÓýappre may be cases where a liability is matched against a number of assets. In that case, the liability is matched against assets in the following order (SI2002/1970 Reg 7(6)):

1. Loan relationships (other than asset-linked securities within FA96/S93 - see CG54130), ships or aircraft
2. Assets on which chargeable gains or allowable losses accrue
3. Assets potentially within the substantial shareholdings exemption of TCGA92/SCH7AC. This involves making assumptions that the shares would continue to satisfy the qualifying conditions for exemption of gains under that schedule.