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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Loan relationships: special types of security: gilt-edged securities: overview

Overview

Gilt-edged securities, commonly known as gilts, are securities issued by the government. They can take many forms, including

  • fixed interest securities;
  • floating interest securities;
  • dated securities, that is they have a date for redemption;
  • undated securities, that is they have no fixed date for redemption; War Loan is an example of an undated gilt-edged security - it is expressed to be redeemable in ‘1952 or after’ at the government’s option;
  • index linked - that is, the redemption value fluctuates with the movements in the retail price index;
  • convertible - that is, they can be converted into other longer dated gilts.

For the purposes of the loan relationships rules, CTA09/S476 defines a ‘gilt-edged security’ as one set out in Schedule 9 of TCGA 1992. All gilts are wholly exempt from chargeable gains (TCGA92/S115), and there are special tax rules for certain types of gilts, which can make them more attractive to the investor than similar non-government securities.

Index-linked

Where gilts are index-linked to the retail prices index (RPI), the profit or loss attributable to the change in RPI is exempt in some cases for both income and corporation tax purposes (CTA09/SS399-400). CFM37120 has more details.

Gilt strips

Strips are securities that are created by separating the right to individual interest payments from the right to repayment of the principal. There are special rules in CTA09/SS401-402 for taxing gilt strips. CFM37160 has more details.

Restricted deductions for certain securities

There are restrictions on the deduction of certain debits relating to FOTRA securities and 3½% War Loan 1952. See CFM37170.

Exempt gilt

CTA09/SCH2/PARA69 exempts from tax the profits on one specific gilt where it is not held for trading purposes. This is 5.5 per cent Treasury Stock 2008-2012.

No debits or credits, unless they relate to interest, will be brought in for tax purposes - for example, a discount or any gains or losses on relevant transactions such as a sale or exchange of the gilt.

However, where this gilt is held for trading purposes, it is treated the same as any other gilt and all of the loan relationship rules apply.

Avoidance

Legislation at CTA09/S400A to 400C was introduced in Finance Act 2010 to deal with a particular form of avoidance involving index-linked gilt-edged securities. See CFM39110+.