Ir41                                       29 November 1994

     CAPITAL GAINS: SHARE INDEX-LINKED SECURITIES

The Chancellor proposes in his Budget to make changes  to
ensure  that  certain securities linked to a share  index
are chargeable to capital gains tax.

The  Chancellor's  intention  is  to  end  the  situation
whereby  quoted securities whose value depends  on  share
prices  can be qualifying corporate bonds so that profits
on   disposal  escape  tax.  The  change  will  apply  to
disposals on or after today.

                    NOTES FOR EDITORS

1.    Section 115 of the Taxation of Chargeable Gains Act
(TCGA) 1992 provides an exemption from capital gains  tax
for  gilt-edged securities and for 'qualifying  corporate
bonds' (QCBs).  Section 117 TCGA defines QCBs; subject to
the  special  rules which apply under the legislation  on
foreign  exchange  gains and losses, QCBs  are,  broadly,
debt  securities issued on commercial terms  whose  value
does  not  reflect  any  foreign exchange  element.  This
latter  condition  excludes  securities  denominated   in
foreign  currency  or whose value is  linked  to  foreign
currency assets.

2.    Other  tax provisions, in Schedule 11  Finance  Act
1989,  cover  the tax treatment of securities  which  are
capable,  but not certain, of being redeemed at  a  price
higher  than the issue price. Profits on the disposal  or
redemption  of  such  securities  -  called  'deep  gain'
securities - are chargeable as income.  But there  is  an
exception  from  deep  gains  treatment  for  'qualifying
indexed securities' .  These are securities subject to  a
number  of detailed conditions but, in particular, linked
to  the retail prices index or a similar overseas general
index  of retail prices, or quoted securities whose value
is linked to an index of share prices.

3.    Securities linked to a United Kingdom  share  index
have  been  issued which can benefit from  both  the  QCB
exemption  from  capital gains tax  and  the  deep  gains
exemption for qualifying indexed securities.  The  result
is  that  profits  on disposal of such  securities  would
generally not be liable to tax.

4.    This could lead to significant loss of tax  and  to
distortion  in  the investment market.  The  Chancellor's
proposals will prevent this by ensuring that with  effect
for  disposals  on or after today these  securities  are,
like  the underlying shares which determine their  value,
within the charge to capital gains tax.