§ Mr. Ivor Richardasked the Chancellor of the Exchequer if he will make a statement about the treatment for Capital Gains Tax purposes of any cash payments made on the conversion of British Government securities.
§ Mr. CallaghanIn general, any cash element in a conversion is treated as giving rise to a part disposal of the shares or securities in respect of which the cash is paid but under paragraph 3(2), 7th Schedule, Finance Act, 1965, a small cash element in a conversion of company shares (in practice, "small" is interpreted as meaning not more than 5 per cent. of total consideration) is treated as reducing the cost to the shareholder of his new shares, so that, in effect, any capital gains tax liability on this cash payment is deferred till those shares are disposed of. As the law stands, this provision does not apply to conversions of securities. I see no reason to distinguish in this matter between conversions of shares and of securities and I therefore intend to propose legislation in the coming Finance Bill to apply paragraph 3(2) to conversions of British Government securities and other securities as defined in paragraph 5(3,b) 7th Schedule. This will avoid the need to make numerous small assessments to capital gains tax.
This legislation will apply to the offer announced yesterday in which 6¼ per cent. Exchequer Loan, 1972 and 6½ 47W per cent. Funding Loan, 1985–87 were offered in exchange for 2½ per cent. Savings Bonds, 1964–67.