Income and Corporation Taxes Act 1988

23 The following section shall be inserted after section 132—

“132A Deep discount securities

(1) Subject to subsections (2) and (3) below, in computing for the purposes of capital gains tax, the gain accruing on the disposal by any person of any deep discount securities (within the meaning of Schedule 4 to the Taxes Act 1988)—

(a) section 31 above shall not apply but the consideration for the disposal shall be treated as reduced by the amount mentioned in paragraph 4(1)(a) of that Schedule (including any amount mentioned in paragraph 3 of that Schedule); and

(b) where that amount exceeds the consideration for the disposal, the amount of the excess shall be treated as expenditure within section 32(1)(b) above incurred by that person on the security immediately before the disposal.

(2) Subsection (3) below applies where—

(a) there is a conversion of securities to which section 82 above applies and those securities include deep discount securities; or

(b) securities including deep discount securities are exchanged (or by virtue of section 86(1) above are treated as exchanged) for other securities in circumstances in which section 85(3) above applies.

(3) Where this subsection applies—

(a) subsection (1) and section 31 above shall not apply but any sum payable to the beneficial owner of the deep discount securities by way of consideration for their disposal (in addition to his new holding) shall be treated for the purpose of capital gains tax as reduced by the amount of the accrued income on which he is chargeable to income tax by virtue of paragraph 7(3) of Schedule 4 to the Taxes Act 1988 or, in a case where paragraph 3 of that Schedule applies, on which he would be so chargeable if that paragraph did not apply; and

(b) where that amount exceeds any such sum, the excess shall be treated as expenditure within section 32(1)(b) above incurred by him on the security immediately before the time of the conversion or exchange.

(4) Where a disposal of a deep discount security is to be treated for the purposes of capital gains tax as one on which neither a gain nor a loss accrues to the person making the disposal, the consideration for which the person acquiring the security would, apart from this subsection, be treated for those purposes as having acquired the security shall be increased by the amount mentioned in paragraph 4(1)(a) of Schedule 4 to the Taxes Act 1988 (including any amount mentioned in paragraph 3 of that Schedule).”.