EXPLANATORY NOTE
(This note is not part of the Regulations)
These Regulations provide for an exemption from capital gains tax in relation to compensation payments made under the LCF Compensation Scheme (“the Scheme”). The Treasury established the Scheme, requiring the Financial Services Compensation Scheme to administer the Scheme on the Treasury’s behalf in exercise of its powers under Part 15A of the Financial Services and Markets Act 20004. The Scheme compensates customers of London and Capital Finance plc (“LCF”) who were adversely affected by losses from investments in that company. In accepting a compensation payment under the Scheme, customers transfer to the scheme operator their rights to claim against LCF in respect of their losses.

Schedule 15 to the Finance Act 2020 provides for exemptions from tax in respect of qualifying payments. Under paragraph 2(5) of that Schedule, the Treasury may by regulations specify compensation payments made by or on behalf of the United Kingdom government to be qualifying payments. Paragraph 4 of the Schedule provides for an exemption from capital gains tax, where a disposal arises as a result of a person forfeiting, surrendering or refraining from exercising rights in return for a qualifying payment and on a disposal of the right to receive a qualifying payment (or an interest in such a right).

Regulation 2 specifies that a compensation payment made under the Scheme is a qualifying payment for the purposes of paragraph 4 of Schedule 15, so that the transfer by customers of their rights in return for the compensation payment, or their disposal of the right to receive such a payment, does not give rise to gains chargeable to capital gains tax.

A Tax Information and Impact Note covering this instrument will be published on the website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins.