CGT16 Gilts & QCBs

Question 1

Companies can issue loan stock to investors on which interest will be paid.

Loan stock will be a qualifying corporate bond (QCB) if it is:

Answer 1

• issued after March 1984;
• expressed in sterling;
• not convertible into any other currency

Question 2

Gilts are ….

Both gilts and QCBs are ….

Answer 2

loan stock issued by the Government carrying a fixed rate of interest.

exempt from CGT for individuals, so no gains arise on sale nor would any losses be allowable.

Question 3

Non-QCBs are ….

Answer 3

treated like shares and hence are chargeable to CGT.

Question 4

If a QCB is received as part of a takeover…

Answer 4

a gain is calculated in exactly the same way as if cash was received.

However, this gain is not charged at the time of the takeover
but instead is frozen and crystallises when the QCB is sold.

Further increases or decreases in the value of the loan stock are ignored

Question 5

A tax efficient way of selling QCBs received on takeover?

Answer 5

QCBs received on takeover can be sold gradually, crystallising a gain equal to the annual exempt amount each year. Should the company go into liquidation, no loss relief is available for the fall in value of the QCB but the frozen gain will still crystallise.

Question 6

For QCBs received as part of a takeover, an election can be made ….

If the election is not made….

Answer 6

for a gain in relation to QCBs which would qualify for business
asset disposal relief not to be deferred. Instead, the gain will be charged at the time of the exchange and a claim for BADR made, so the gain is charged at 10%

If the election is not made, BADR will not be available when the frozen gain comes back into charge unless BADR conditions are met at that time.

Question 7

The election to disapply the ‘share for share’ and ‘share for QCB’ rules can be made where a claim for investors’ relief is possible in respect of the disposal of the ‘old’ shares.

When might this be beneficial?

Answer 7

This will be beneficial where shares are exchanged for non-QCBs or QCBs, as investors’ relief would not be available in respect of a subsequent disposal of the non-QCBs or the
deferred gain becoming chargeable on the disposal of the QCBs