§ Mr. Neil Hamilton
asked the Chancellor of the Exchequer when he expects to publish the draft legislation on the tax treatment of deep discount securities issued by companies.
§ Mr. Moore
With my approval the Inland Revenue is today publishing draft legislation on the tax treatment of such securities. The broad principle is that the discount will be treated as income accruing over the life of the stock on a compound yield basis. But although the issuing company will only pay the discount on redemption it will be able to set against its annual profits that part of the discount which accrues each year. The holder of the stock, on the other hand, will be taxed on the discount only when he disposes of the stock or when it is redeemed. The Government believe that this will help to revive the corporate bond market by extending the range of borrowing instruments available to companies.
The Government recognise that section 66 of the Bankruptcy Act 1914 has been interpreted as exposing potential purchasers of deep discounted and zero coupon bonds to the risk of disproportionate losses in the event of the company in which they had invested going bankrupt. Our present proposal is to legislate in the 1984–85 Session to deal with this problem along the lines recommended in chapter 31 of the Cork report.