The London Capital and Finance Compensation Scheme (Chargeable Gains Exemption) Regulations 2021
Published 9 December 2021
© Crown copyright 2021
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This publication is available at https://www.gov.uk/government/publications/the-london-capital-and-finance-compensation-scheme-chargeable-gains-exemption-regulations-2021/the-london-capital-and-finance-compensation-scheme-chargeable-gains-exemption-regulations-2021
Who is likely to be affected
Individuals and personal representatives who receive payments under the London Capital and Finance (LCF) Compensation Scheme.
General description of the measure
This measure introduces a Capital Gains Tax exemption for payments made under the LCF Compensation Scheme.
Policy objective
This measure gives certainty that payments made under the LCF Compensation Scheme are exempt from Capital Gains Tax.
Background to the measure
The LCF Compensation Scheme (https://www.gov.uk/government/publications/london-capital-finance-lcf-compensation-scheme) is a government funded scheme designed to compensate bondholders who suffered losses after investing in LCF, which entered administration in 2019. On 17 December 2020 the Economic Secretary to the Treasury announced that the government would establish a compensation scheme for bondholders who had lost money following LCF’s collapse. Further details were announced on 19 April 2021 and 3 November 2021.
The scheme is available to all LCF bondholders who have not already received compensation from the Financial Services Compensation Scheme. It provides compensation for 80% of an LCF bondholder’s principal investment up to a maximum of £68,000.
This measure complements the LCF Compensation Scheme by clarifying that the compensation received is not subject to Capital Gains Tax, as announced on 20 July 2020.
Detailed proposal
Operative date
This measure applies to payments made under the LCF Compensation Scheme which was launched on 3 November 2021.
Current law
The Taxation of Chargeable Gains Act 1992 imposes Capital Gains Tax on gains that arise on the disposal of assets which are not chargeable to Income Tax. The nature of the LCF Compensation Scheme can give rise to a disposal of an asset that could be subject to Capital Gains Tax.
Proposed revisions
Legislation will be introduced to exempt payments made under the LCF Compensation Scheme from Capital Gains Tax.
Summary of impacts
Exchequer impact (£m)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| Empty | Empty | Empty | Empty | Empty | Empty |
The final costing will be subject to scrutiny by the Office for Budget Responsibility, and will be set out at the next fiscal event.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure is expected to have a positive impact on up to 8,800 individuals and personal representatives who could be eligible for payments of up to £68,000 under the LCF Compensation Scheme criteria.
This measure introduces a Capital Gains Tax exemption for payments made under the LCF Compensation Scheme. Customer experience is expected to remain broadly the same as this measure does not alter how individuals interact with HMRC. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
This measure affects individuals and personal representatives receiving payments under, or in connection to, the LCF Compensation Scheme. The policy applies equally to those affected by the provisions of the scheme and in receipt of the relevant payments. It is likely that those benefitting from this measure could be close to retirement or retirees.
It is not anticipated that there will be impacts for those in other groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have no impact on businesses or civil society organisations. It only affects individuals in receipt of payments under the LCF Compensation Scheme.
Operational impact (£m) (HMRC or other)
Exempting compensation payments to LCF bondholders from Capital Gains Tax will create no additional costs for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communications with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Nick Williams on Telephone: 03000 585660 or email: capitalgains.taxteam@hmrc.gov.uk
Declaration
The Right Honourable Lucy Frazer QC MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.