SCHEDULE 11 Deep Gain Securities
Deep gain securities
1
(1)
For the purposes of this Schedule a deep gain security is a redeemablesecurity (whenever issued) which fulfils the first and second conditions.
(2)
The first condition is that, taking the security at the time it is issuedand assuming redemption, the amount payable on redemption might constitute adeep gain; and if the security is capable of redemption on one of a number ofoccasions, this condition is fulfilled if it is fulfilled as regards any oneof them.
(3)
For the purposes of sub-paragraph (2) above “redemption” does not include any redemption which may bemade before maturity only at the option of the person who issued the security(and no other person).
F1(3A)
In the case of a security issued before 13th November 1991, for the purposes of sub-paragraph (2) above “redemption” does not include any redemption which may be made before maturity otherwise than in pursuance of the exercise by the person who holds the security for the time being of an option exercisable only on the effluxion of time or the happening of an event which (judged at the time of the security’s issue) is certain or likely to occur.
(3B)
In the case of a security issued on or after 13th November 1991, for the purposes of sub-paragraph (2) above “redemption” does not include any redemption which may be made before maturity otherwise than at the option of the person who holds the security for the time being and as regards which the following conditions are fulfilled (judged at the time of the security’s issue)—
(a)
the event occasioning redemption is such that, if it occurred and there was no provision for redemption, the interests of the person holding the security at the time of the occurrence might be adversely affected,
(b)
the event occasioning redemption is neither certain nor likely to occur,
(c)
the event occasioning redemption is not one of a number of events occasioning or allowing redemption before maturity at least one of which is certain or likely to occur, and
(d)
the obtaining of a tax advantage by any person is not the main benefit, or one of the main benefits, that might be expected to accrue from the provision for redemption.
(3C)
The condition set out in sub-paragraph (3B)(a) above is fulfilled if it is fulfilled by reference to any one potential holder, whether or not it is fulfilled by reference to other potential holders.
(3D) In a case where—
(a)
the security is one which under the terms of issue can be converted into or exchanged for a security of a different kind, and
(b)
it falls to be decided whether the condition set out in paragraph (b) or (c) of sub-paragraph (3B) above is fulfilled,
the condition concerned shall not be treated as fulfilled unless it is fulfilled having regard only to circumstances in which (judged at the time of the security’s issue) the right to convert or exchange cannot be or is unlikely to be exercised.
(3E)
In the case of a security issued on or after 13th November 1991, for the purposes of sub-paragraph (2) above “redemption” does not include any redemption which may be made before maturity at the option of the person who holds the security for the time being and as regards which the following conditions are fulfilled (judged at the time of the security’s issue)—
(a)
the event allowing the option to be exercised is such that, if it occurred and there was no provision for redemption, the interests of the person holding the security at the time of the occurrence might be adversely affected,
(b)
the event allowing the option to be exercised is neither certain nor likely to occur,
(c)
the event allowing the option to be exercised is not one of a number of events occasioning or allowing redemption before maturity at least one of which is certain or likely to occur, and
(d)
the obtaining of a tax advantage by any person is not the main benefit, or one of the main benefits, that might be expected to accrue from the provision for redemption.
(3F)
The condition set out in sub-paragraph (3E)(a) above is fulfilled if it is fulfilled by reference to any one potential holder, whether or not it is fulfilled by reference to other potential holders.
(3G) In a case where—
(a)
the security is one which under the terms of issue can be converted into or exchanged for a security of a different kind, and
(b)
it falls to be decided whether the condition set out in paragraph (b) or (c) of sub-paragraph (3E) above is fulfilled,
the condition concerned shall not be treated as fulfilled unless it is fulfilled having regard only to circumstances in which (judged at the time of the security’s issue) the right to convert or exchange cannot be or is unlikely to be exercised.
(4)
The second condition is that the security—
(a)
is not a deep discount security (either because the amount payable onredemption is not known at issue or for some other reason),
(b)
is not a share in a company,
(c)
is not a qualifying indexed security,
(d)
is not a convertible security, and
(e)
does not fall within sub-paragraph (5), (6) or (7) below.
(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 gain 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 gain security.
(8)
For the purposes of this paragraph—
(a)
a deep discount security is a security which is a deep discount securityfor the purposes of Schedule 4 to the Taxes Act 1988,
(b)
“qualifying indexed security” has the meaning given byparagraph 2 below, and
(c)
a gilt-edged security is a security which is a gilt-edged security for thepurposes of the M1Capital Gains Tax Act 1979.
(9)
For the purposes of this paragraph the amount payable on redemption of asecurity constitutes a deep gain if the issue price is less than the amountso payable, and the amount by which it is less represents more than—
(a)
15 per cent. of the amount so payable, or
(b)
half Y per cent. of the amount so payable, where Y is the number ofcomplete years between the date of issue and the redemption date.
(10)
For the purposes of this paragraph the amount payable on redemption doesnot include any amount payable by way of interest.