§ Mr. Formanasked the Chancellor of the Exchequer whether he has any plans to introduce legislation to amend the capital gains tax rules which apply to assets disposed of in a series of transactions; and whether he will make a statement.
§ Mr. Moore[pursuant to his reply, 20 December 1984, c. 326]: My right hon. Friend the Chancellor of the Exchequer has become concerned at the increasing use of the practice known as bond washing, that is the conversion of income arising on fixed interest securities into capital form so that it is chargeable according to the rules of capital gains tax rather than those of income tax. This can be combined with the exemption from capital gains tax enjoyed by most fixed interest securities held for 12 months or more with the result that tax is being avoided on a large and rising scale. It is estimated that this practice is now costing the Exchequer about £300 million a year.
Accordingly my right hon. Friend has decided to take action to bring the tax advantages of bond washing to an end. The necessary legislation containing my right hon. Friend's proposals will be included in the forthcoming Finance Bill. It will take effect from 28 February 1986, but there will be provisions to limit forestalling and these will take effect from midnight last night.
This decision was announced before the market opened today so that the market could trade in full knowledge of the Government's intention, which affects the specific characteristics of gilt-edged securities. With my right hon. Friend's authority the Inland Revenue has issued a press notice giving fuller details. I have placed copies of the press notice in the Library.