Annex 1: Minor changes in the law made by the Act: Change 87: Strips of government securities: acquisitions and disposals: section 445
This change alters the time at which strips of government securities held at 5 April that are deemed to be transferred at market value on that day are re-acquired. The reacquisition is deemed to be immediate, rather than to occur on 6 April.
Paragraph 14(4) of Schedule 13 to FA 1996 provides that a person holding a strip of a government security on 5 April in any tax year is deemed to have transferred it on that day. (Strips are defined in paragraph 15(1) of Schedule 13 to FA 1996, and the definition is rewritten in section 444 of this Act.) The rule in paragraph 14(4) of Schedule 13 to FA 1996 only applies if no other disposal occurs on 5 April and ensures that anyone holding a strip is taxed, year by year, on the increasing value of the strip. The purpose of paragraph 14(4) of Schedule 13 to FA 1996 was to prevent strips becoming a tax avoidance vehicle, since otherwise investors might choose to invest in strips of securities, rather than in the securities themselves, so as to defer their tax liabilities instead of being taxed on interest from the securities year by year.
Under paragraph 14(4)(c) of Schedule 13 to FA 1996, the strip which is deemed to be transferred on 5 April is deemed to be reacquired on the next day (6 April), for its value on the day of the transfer (5 April).
There does not appear to be any reason for this delay of one day. It is simpler to provide that the strip is treated as disposed of and immediately reacquired and doing so removes the scope for confusion in the source legislation caused by the reacquisition on 6 April being deemed to be at the value of the strip on 5 April. It also removes the scope for confusion where there is an actual disposal on 6 April. Therefore, in rewriting paragraph 14(4)(c) of Schedule 13 to FA 1996, section 445(3) provides for strips that are treated as disposed of on 5 April at market value to be treated as having been immediately reacquired for the same amount, rather than being reacquired on the following day for that amount. Paragraph 80 of Schedule 2 to this Act preserves the position in the source legislation for strips held on 5 April 2005, so that they are deemed to have been reacquired on 6 April 2005 at market value on that day.
The change has no implications for the amount of tax paid, who pays it or when.