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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Building Societies: introduction

This guidance deals with the members of a building society. For instructions on the taxation of building societies themselves, see CG41000+.

Share accounts

Shares in a building society share account are chargeable assets. However, the nature of building society shares is such that it is impossible for an investor to make an unindexed gain or loss. Exceptionally there might be a loss if a society was wound up without returning all the capital invested.

No indexation allowance

For disposals on or after 30 November 1993 there is a general rule that indexation cannot create or increase a loss, see CG17700+. There was a special rule disapplying indexation allowance to Building Society share accounts before that date.

Deposit accounts

Deposits in a deposit account are debts and not chargeable assets.

Permanent interest bearing shares

Permanent interest bearing shares (PIBS) are a type of share issued by building societies. Unlike other share accounts which are really like deposits PIBS represent a long term contribution to the capital of the society. They are the Building Society equivalent of a corporate bond and are treated similarly for capital gains purposes, TCGA92/S117(11)(b).

A PIBS will be a qualifying corporate bond if it is expressed in sterling and is not convertible into or redeemable in a currency other than sterling, TCGA92/S117(5) . Disposals of qualifying corporate bonds are exempt from Capital Gains Tax. You should refer to the guidance at CG53708 to decide whether the shares are expressed in sterling.

If the PIBS is not a qualifying corporate bond it will be a relevant security and not subject to the normal share pooling rules. The share identification rules in TCGA92/S108 will apply. See CG51140+ for further details.

A building society may give existing or former members the right to acquire PIBS in priority to other persons. This right is treated as an option within TCGA92/S144 for which the members have given no consideration and which has no value. The normal Capital Gains Tax rules for options apply, see CG12300+. There is no charge to Capital Gains Tax either on the society or the members when the right is granted. If the member is given the right to acquire PIBS which will be qualifying corporate bonds there are no further consequences for the member.

Any gain on the disposal of the right to acquire PIBS which are not qualifying corporate bonds will be assessable. If the taxpayer exercises his or her right and acquires PIBS which are not qualifying corporate bonds this is not treated as a disposal of the option. TCGA92/S144 (3) applies. The grant of the option and the issue of the shares is treated as a single transaction. Indexation allowance is given from the date the taxpayer acquires the shares.