After section 762 of the Taxes Act 1988 insert—

“762AExchange of interests of different classes

(1)

This section applies where—

(a)

classes of interest in an offshore fund (the “main fund”) are treated as separate offshore funds under section 756C; and

(b)

as the result of—

(i)

a reorganisation within the meaning of section 126 of the 1992 Act, or

(ii)

a conversion of securities within the meaning of section 132 of that Act,

a person exchanges an interest of one class (A) in the main fund for an interest of another class (B) in that fund.

(2)

Where—

(a)

the interest of class A—

(i)

is at the time of the exchange an interest in a non-qualifying offshore fund, or

(ii)

has been an interest in such a fund at any material time, and

(b)

the interest of class B is at the time of the exchange an interest in a fund which is certified by the Board as a distributing offshore fund,

section 127 of the 1992 Act (equation of original shares and new holding) shall not prevent the exchange constituting a disposal for the purposes of this Chapter.

(3)

Any such disposal shall be treated as a disposal for a consideration equal to the market value of the rights at the time of the exchange.

(4)

In this section—

“class of interest” has the same meaning as in section 756C(1);

“material time” has the same meaning as in section 757.”.

In section 763 of the Taxes Act 1988 (deduction of offshore income gain in determining capital gain), after subsection (6) insert—

“(6A)

Where the disposal to which this Chapter applies constitutes such a disposal by virtue of section 762A (exchange of interests of different classes), the 1992 Act shall have effect as if an amount equal to the offshore income gain to which that disposal gives rise were given (by the person making the exchange) as consideration for the new holding (within the meaning of section 128 of that Act (consideration given or received for new holding on a reorganisation)).”