§ Mr. Matthew Banks
To ask the Chancellor of the Exchequer if he will make a statement on the taxation of gilts and bonds. 
§ Mr. Kenneth Clarke
The Government have decided to proceed with the reform of the taxation of gilts and bonds outlined in the consultative document published by the Inland Revenue on 25 May 1995. However, these changes will not apply to the overwhelming majority of private investors.
These proposals will produce a simpler and more sensible tax regime, and will pave the way for market innovations which would help to ensure that the United Kingdom maintains and enhances its competitive position 378W in world financial markets. The introduction of a strips market will be a further important step in the development of the gilt market, widening investor choice and helping to reduce funding costs.
At the same time, the Government intend to protect the interests of private investors. There will be a threshold, set at nominal holdings of £200,000, below which private investors will continue to pay tax on interest on the present basis. In addition, the Government have decided that the existing regime should continue to apply to two issues of low coupon gilts—3.5 per cent. 1999/04 and 5.5 per cent. 2008/12. These gilts are widely held by private investors. The Government have also decided that all non-equity shares—including zero-coupon preference shares—should be outside the new regime, although the position may be reviewed if serious distortions result. These decisions mean that probably fewer than 4,000 private investor—0.5 per cent. of the total—will be within the new regime. Many of those affected will on balance gain, rather than lose, from the reform.
There will be special rules to ensure that gilt and bond unit trusts are not disadvantaged, and that there is tax exemption for corporate bond Personal Equity Plans.
The element in the return on indexed gilts due to indexation of the principal repayment will remain tax free.
Many of those responding to the Inland Revenue's consultative document have expressed the wish for more time to discuss technical details with the Inland Revenue. At the same time, the Government are conscious of the difficulties which the markets and those having to make commercial decisions are facing because of uncertainty as to whether the reform will go ahead.
The Government have, therefore, decided to delay the start of the new regime until 1 April 1996 for companies, and until 6 April 1996 for the few private investors with holdings of over £200,000. In the meantime, the Inland Revenue will continue technical discussions with interested parties.
The Government have decided in principle to introduce an official gilt strips facility. It has also decided that gilts strippable through any such market should be exempt from withholding tax and the quarterly accounting arrangements to be introduced in connection with gilt repo. The introduction of a strips market will not take place before the second half of 1996. In the meantime, the Bank of England will be consulting further on the details.
§ Ms Armstrong
To ask the Chancellor of the Exchequer (1) what representations he has received to exclude zero dividend preference shares from the scope of the proposed changes to the taxation of gilts and bonds; and if he will make a statement; 
(2) what assessment he has made of the extent to which private investors holding zero dividend preference shares will be affected by the proposed changes to the taxation of gilts and bonds; 
(3) what steps he intends to take to avoid the potential for double taxation of gilts and bonds held by collective investment vehicles under the changes proposed to the treatment of these investments. 379W
§ Mrs. Angela Knight
I refer to the answer my right hon. and learned Friend the Chancellor is today giving to the hon. Member for Southport (Mr. Banks).