Anti-avoidance for indexed linked gilts
The measure
Legislation will be introduced in Finance Bill 2010 to counter avoidance by
companies that exploit the specific rules surrounding the taxation of
index-linked gilt-edged securities.
Under existing legislation, where a company holds such securities it is not
taxed on fair value movements relating to changes in the retail prices index.
The new legislation (a draft of which is published today) will operate to ensure
that such movements are taxed where that company, or another entity in the
group, enters into a scheme that has the purpose or a main purpose of securing
that the index-linked return on the gilt is hedged.
Who will be affected?
Companies that hold index-linked gilt-edged securities, that undertake such arrangements so that they are not economically exposed to the inflation linked return on the gilt.
When?
The legislation is expected to apply with respect to the return arising on the index-linked gilt-edged securities held on or after 9 December 2009.
It is not surprising that HMRC have sought to limit this tax free provision to circumstances when the economic exposure is borne by the group concerned. It reinforces HMRC's approach to counteracting what they perceive as tax avoidance schemes.
