Finance Act 1989

2 (1) For the purposes of paragraph 1 above a qualifying indexed security is asecurity which fulfils each of the conditions set out below.

(2) The first condition is that—

(a) the security is denominated in sterling and under the terms of issue theamount payable on redemption is determined by reference to the movement of theretail prices index,

(b) the security is denominated in a currency other than sterling and underthe terms of issue the amount payable on redemption is determined by referenceto any similar general index of prices which is published by the government,or by an agent of the government, of the territory in whose currency thesecurity is denominated, or

(c) [F1 the security was quoted in the official list of arecognised stock exchange at the time it was issued], and under the terms of issue the amount payable on redemption isdetermined by reference to the movement of a published index of prices ofshares quoted in the official list of a recognised stock exchange.

(3) The second condition is that the terms of issue make no provision forconversion into, or redemption in, a currency other than that in which thesecurity is denominated on issue.

(4) The third condition is that under the terms of issue—

(a) interest is payable on the security,

(b) not more than one year can elapse between the day of issue and the firstday on which interest becomes payable, or between any day on which interestbecomes payable and the next day on which it becomes payable,

(c) the interest payable is determined by reference to a rate which is notless than a reasonable commercial rate (judged by reference to the date ofissue and by reference to securities of a similar nature to the one inquestion), and

(d) the interest payable is also determined by reference to the movement ofthe index by reference to which the amount payable on redemption isdetermined.

(5) The fourth condition is that where that index is applied to determine theamount payable on redemption or to determine interest it must, under the termsof issue, be applied precisely and without restriction.

(6) The fifth condition is that—

(a) the security is expressed to be issued for a definite period stated on theface of the security, and

(b) the period so stated commences with the day of issue and is five years ormore.

(7) The sixth condition is that the terms of issue contain no provisionenabling the person who holds the security for the time being to require anyof the following before the expiry of a period which commences with the dayof issue and which is five years or more—

(a) the security to be repurchased by the person who issued it;

(b) the security to be purchased by a person other than the person who issuedit;

(c) the security to be converted into another kind of security;

(d) the security to be redeemed in circumstances other than any of thequalifying circumstances (set out in sub-paragraph (13) below).

(8) The seventh condition is that, where the issue is handled by an agent forthe person making the issue or by an underwriter, the terms on which the agentor underwriter offers the security—

(a) contain no provision for the security to be repurchased by the person whoissued it, converted into another kind of security, or redeemed, before theexpiry of a period which commences with the day of issue and which is fiveyears or more, and

(b) contain no provision enabling the person who holds the security for thetime being to require the security to be purchased, by a person other than theperson who issued it, before the expiry of a period which commences with theday of issue and which is five years or more.

[F2 (8A) If a security was issued before 9th June 1989, was not quoted in theofficial list of a recognised stock exchange at the time it was issued, butwas quoted in such a list on 8th June 1989, for the purposes of subparagraph(2)(c) above it shall be deemed to have been quoted in that list at the timeit was issued.

(8B) If a security was issued on or after 9th June 1989, and was quoted in theofficial list of a recognised stock exchange at a time aftet it was issued butbefore the end of the qualifying period, for the purposes of sub-paragraph(2)(c) above it shall be deemed to have been quoted in that list at the timeit was issued; and the qualifying period is the period of one month beginningwith the day on which the security was issued]

(9) For the purposes of sub-paragraph (5) 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).

(10) In a case where the amount payable on redemption, or the amount ofinterest, is under the terms of issue determined by reference to the movementof the index for a period (a notional period) in place of a later actualperiod (a process commonly known as lagging) the fourth condition shall betreated as fulfilled if the following rules are fulfilled—

(a) under the terms of issue the notional period must start not more thaneight months before the actual period starts and must end not more than eightmonths before the actual period ends, and

(b) where the index is applied for the notional period it must, under theterms of issue, be applied precisely and without restriction.

(11) In a case where the terms of issue contain provision for the amountpayable on redemption to be not less than an amount stated in the terms, theprovision shall not prevent the fourth condition being fulfilled if—

(a) the security was issued before 9th June 1989, and

(b) the amount stated does not constitute a deep gain (within the meaninggiven by paragraph 1(9) above).

[F2 (11A) In a case where the terms of issue contain provision for the amountpayable on redemption to be not less than a specified percentage of the issueprice, the provision shall not prevent the fourth condition being fulfilledif the specified percentage is not greater than 10.]

(12) In a case where—

(a) the terms of issue contain provision for the amount payable on redemptionin any of the qualifying circumstances (set out in sub-paragraph (13) below)to be not less than an amount stated in the terms, and

(b) the security was issued before 9th June 1989,

the provision shall not prevent the fourth condition being fulfilled.

[F3 (12A) In a case where—

(a) the terms of issue contain provision for the amount payable on redemptionin any of the qualifying circumstances (set out in sub-paragraph (13) below)to be not more than the issue price, and

(b) the security was issued on or after 9th June 1989,

the provision shall not prevent the fourth condition being fulfilled.]

(13) For the purposes of sub-paragraphs (7) [F4 , (12) and (12A)] above the following are qualifying circumstances—

(a) there is a fundamental change in the rules governing the index and thechange would be detrimental to the interests of the person who holds thesecurity for the time being;

(b) the index ceases to be published without being replaced by a comparableindex;

[F5 (c) in the case of a security issued before 13th November 1991, any circumstances except circumstances in which the person who holds the security for the time being exercises 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;

(d) in the case of a security issued on or after 13th November 1991, any circumstances for 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 conditions set out in paragraph 1(3B) above are fulfilled (judged at the time of the security’s issue and read subject to paragraph 1(3C) and (3D) above);

(e) in the case of a security issued on or after 13th November 1991, any circumstances for 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 conditions set out in paragraph 1(3E) above are fulfilled (judged at the time of the security’s issue and read subject to paragraph 1(3F) and (3G) above).]

(14) In a case where an issue is handled by an agent for the person making theissue, or by an underwriter, for the purposes of sub-paragraphs (2) to (5) and(10) above the terms of issue shall be taken to include any terms on which theagent or underwriter offers the security.

(15) For the purposes of this paragraph the amount payable on redemption doesnot include any amount payable by way of interest.

(16) For the purposes of this paragraph “control” (in relation to acompany) shall be construed in accordance with section 840 of the Taxes Act1988.

Textual Amendments

F1 Finance Act 1990 (c. 29), s. 58(2)(7)–deemedalways to have had effect. Previously

“the security was issued before9th June 1989 and was quoted in the official list of a recognised stockexchange on 8th June 1989”

F2 Finance Act 1990 (c. 29), s. 58(3)(4)respectively–deemed always to have had effect (subs. (7))

F3 Finance Act 1990 (c. 29), s. 58(5)(7)–deemedalways to have had effect

F4 Finance Act 1990 (c. 29), s. 58(6)(a)(7)–deemedalways to have had effect. Previously

“and (12)”

F5 Sch. 11 para. 2(13)(c)-(e) substituted(retrospectively and deemed always to have had effect) for sub-para. (13)(c)(d) by Finance (No. 2) Act 1992 (c. 48), s. 33, Sch. 7 paras.3, 7, 8