Finance Act 1989

Section 93.

SCHEDULE 10 U.K. Deep Discount Securities: Amendments

1 Schedule 4 to the Taxes Act 1988 (deep discount securities) shall beamended as mentioned in the following provisions of this Schedule.

2 (1) Paragraph 1 shall be amended as follows.

(2) The following paragraph shall be inserted after sub-paragraph(1)(d)—

“(dd) “a deep discount security” also means any redeemable security whichhas been issued by a public body (at whatever time) at a deep discount, otherthan—

(i) a security such as is mentioned in paragraph (d)(ii) above;

(ii) a security falling within sub-paragraph (5), (6) or (7) below;”.

(3) In sub-paragraph (1)(g) after the words “the company” there shall beinserted the words “or the public body”.

(4) The following shall be inserted at the end of sub-paragraph (2)— “ This sub-paragraph applies only in the case of securities issued by acompany. ”

(5) The following sub-paragraphs shall be inserted after sub-paragraph(3)—

“(4) For the purposes of this Schedule a public body is any of the followingwhich is not a company—

(a) a government, whether of the United Kingdom or elsewhere;

(b) a public or local authority, whether in the United Kingdom or elsewhere.

(5) A security falls within this sub-paragraph if it is a gilt-edged securityand—

(a) it was issued before 14th March 1989, or

(b) it was issued on or after that date but was issued under the sameprospectus as any gilt-edged security issued before that date.

(6) A security falls within this sub-paragraph if it is a gilt-edged securityand—

(a) it was issued under a prospectus under which no securities were issuedbefore 14th March 1989,

(b) it was issued otherwise than on the occasion of the original issue underthe prospectus, and

(c) all the securities issued on the occasion of the original issue under theprospectus are gilt-edged securities which are not deep discount securities.

(7) A security falls within this sub-paragraph if it is not a gilt-edgedsecurity and was issued (at whatever time) under the same prospectus as anyother security which was issued before the security in question and which isnot a deep discount security.

(8) For the purposes of this Schedule “gilt-edged security”has the same meaning as it has for the purposes of the 1979 Act.”

3 The following sub-paragraph shall be inserted after paragraph 4(7)—

“(8) In the case of a deep discount security issued by a public body, thisparagraph applies where a disposal is made on or after 14th March 1989(whatever the date of acquisition).”

4 In paragraph 11(1) after the words “deep discount security” thereshall be inserted the words “issued by a company”.

5 The following paragraph shall be inserted after paragraph 11—

Where any deep discount security issued by a public body is redeemedbefore the redemption date by the body which issued it, paragraph 4 aboveshall have effect subject to paragraph 11(2) above (ignoring the wordsfollowing paragraph (b)).”

6 The following sub-paragraph shall be inserted after paragraph 13(2)—

“(3) Every public body which issues deep discount securities on or after 1stAugust 1989 shall cause to be shown on the certificate of each such securitythe income element for each income period between the date of issue of thesecurity and the redemption date.”

7 The following shall be inserted after paragraph 14—

“15 Retirement benefit schemes

“15 (1) In a case where—

(a) paragraph 4 above would apply (apart from this paragraph) to a disposalof a security, and

(b) immediately before the disposal was made the security was held for thepurposes of an exempt approved scheme (within the meaning of Chapter I of PartXIV),

that paragraph shall not apply to the disposal.

(2) Sub-paragraph (1) above shall not apply unless the disposal is made on orafter 14th March 1989.

16 Stock lending

16 (1) In a case where—

(a) a security is the subject of a transfer which falls within section 129(3),and

(b) the transfer constitutes a disposal to which (apart from this paragraph)paragraph 4 above would apply,

that paragraph shall not apply to the disposal.

(2) Sub-paragraph (1) above shall not apply unless the disposal is made on orafter 14th March 1989.

17 Trustees

17 (1) Where on the disposal by trustees of a deep discount security an amountis treated as income chargeable to tax by virtue of paragraph 4(1) above, therate at which it is chargeable shall be a rate equal to the sum of the basicrate and the additional rate for the year of assessment in which the disposalis made.

(2) Where the trustees are trustees of a scheme to which section 469 applies,sub-paragraph (1) above shall not apply if or to the extent that the amountis treated as income in the accounts of the scheme.

(3) Sub-paragraph (1) above shall not apply unless the disposal is made on orafter 14th March 1989.

18 Underwriters

18 (1) An underwriting member of Lloyd’s shall be treated for the purposes ofthis Schedule as absolutely entitled as against the trustees to the securitiesforming part of his premiums trust fund, his special reserve fund (if any) andany other trust fund required or authorised by the rules of Lloyd’s, orrequired by the underwriting agent through whom his business or any part ofit is carried on, to be kept in connection with the business.

(2) Sub-paragraph (1) above applies where a disposal is made on or after 14thMarch 1989 (whatever the date of acquisition).

(3) Where a security forms part of a premiums trust fund at the end of 31stDecember of any relevant year, for the purposes of this Schedule the trusteesof the fund shall be deemed to dispose of the security at that time; and forthis purpose relevant years are 1989 and subsequent years.

(4) Where a security forms part of a premiums trust fund at the beginning of1st January of any relevant year, for the purposes of this Schedule thetrustees of the fund shall be deemed to acquire the security at that time; andfor this purpose relevant years are 1990 and subsequent years.

(5) Sub-paragraph (6) below applies where the following state of affairsexists at the beginning of 1st January of any year or the end of 31st Decemberof any year—

(a) securities have been transferred by the trustees of a premiums trust fundin pursuance of an arrangement mentioned in section 129(1) or (2),

(b) the transfer was made to enable another person to fulfil a contract or tomake a transfer,

(c) securities have not been transferred in return, and

(d) section 129(3) applies to the transfer made by the trustees.

(6) The securities transferred by the trustees shall be treated for thepurposes of sub-paragraphs (3) and (4) above as if they formed part of thepremiums trust fund at the beginning of 1st January concerned or the end of31st December concerned (as the case may be).

(7) Paragraph 7 above shall have effect subject to sub-paragraph (3) above.

(8) Paragraph 7(2) above shall not apply where—

(a) the deceased was an underwriting member of Lloyd’s who died on or after14th March 1989, and

(b) immediately before his death the security concerned formed part of apremiums trust fund, a special reserve fund or any other trust fund requiredor authorised by the rules of Lloyd’s, or required by the underwriting agentthrough whom the deceased’s business or any part of it was carried on, to bekept in connection with the business.

(9) In a case where an amount treated as income chargeable to tax by virtueof paragraph 4(1) above constitutes profits or gains mentioned in section450(1)—

(a) section 450(1)(b) shall apply; and

(b) paragraph 4(1)(b) above shall not apply.

(10) For the purpose of computing income tax for the year 1987–88sub-paragraph (9) above shall have effect as if—

(a) the reference to section 450(1) were to paragraph 2 of Schedule 16 to theFinance Act 1973, and

(b) the reference to section 450(1)(b) were to paragraph 2(b) of thatSchedule.

(11) In this paragraph “business” and “premiums trustfund” have the meanings given by section 457.

19 Gilts: special rules

19 (1) In a case where—

(a) securities have been issued by a public body under a prospectus underwhich no securities were issued before 14th March 1989,

(b) some of the securities issued under the prospectus are gilt-edgedsecurities which are would-be deep discount securities,

(c) some of the securities issued under the prospectus are gilt-edgedsecurities which are not would-be deep discount securities, and

(d) there is a time when the aggregate nominal value of the securities fallingwithin paragraph (b) above (at that time) exceeds the aggregate nominal valueof the securities falling within paragraph (c) above (at that time),

sub-paragraph (2) below shall apply in relation to any gilt-edgedsecurity which has been or is issued under the prospectus at any time (whetherbefore, at or after the time mentioned in paragraph (d) above).

(2) As regards any event occurring in relation to the security after the timementioned in sub-paragraph (1)(d) above, paragraphs 4, 7, 8, 11A, 12 and 14to 18 above shall have effect as if—

(a) the security were a deep discount security,

(b) it had been issued as such (whatever the time it was issued), and

(c) it had been acquired as such (whatever the time it was acquired).

(3) For the purposes of sub-paragraph (1) above a would-be deep discountsecurity is a security which would be a deep discount security apart fromparagraph 1(6) above.

(4) For the purposes of sub-paragraph (2) above events, in relation to asecurity, include anything constituting a disposal for the purposes of the1979 Act, the death of a person competent to dispose of the security, adisposal mentioned in paragraph 18(3) above, and an acquisition mentioned inparagraph 18(4) above.

20 Non-gilts: special rules

20 (1) In a case where—

(a) all the securities issued by a public body on the occasion of the originalissue under a particular prospectus (whatever the time of the issue) areneither gilt-edged securities nor deep discount securities,

(b) some of the securities issued under the prospectus are not gilt-edgedsecurities but are new would-be deep discount securities, and

(c) there is a time when the aggregate nominal value of the securities fallingwithin paragraph (b) above (at that time) exceeds the aggregate nominal valueof the securities which (looking at the state of affairs at that time) havebeen issued under the prospectus and are neither gilt-edged securities nor newwould-be deep discount securities,

sub-paragraph (2) below shall apply in relation to any security which isnot a gilt-edged security but which has been or is issued under the prospectusat any time (whether before, at or after the time mentioned in paragraph (c)above).

(2) As regards any event occurring in relation to the security after the timementioned in sub-paragraph (1)(c) above, paragraphs 4, 7, 8, 11A, 12 and 14to 18 above shall have effect as if—

(a) the security were a deep discount security,

(b) it had been issued as such (whatever the time it was issued), and

(c) it had been acquired as such (whatever the time it was acquired).

(3) For the purposes of sub-paragraph (1) above a new would-be deep discountsecurity is a security which—

(a) would be a deep discount security apart from paragraph 1(7) above, and

(b) was issued on or after 14th March 1989.

(4) For the purposes of sub-paragraph (2) above events, in relation to asecurity, include anything constituting a disposal for the purposes of the1979 Act, the death of a person competent to dispose of the security, adisposal mentioned in paragraph 18(3) above, and an acquisition mentioned inparagraph 18(4) above.”