What financial instruments are excluded from being deeply discounted securities under section 432 of ITTOIA 2005?

Section 432 excludes four categories from deeply discounted securities treatment: company shares, non-strip gilt-edged securities (UK government bonds), life assurance policies, and capital redemption policies. These instruments are carved out entirely, regardless of any discount element present at issue or acquisition.

When can excluded indexed securities be treated as deeply discounted securities under United Kingdom law?

Excluded indexed securities, whose redemption value is linked to an index such as the retail prices index, are ordinarily not deeply discounted securities. However, under section 431(5), they become deeply discounted securities if a person connected with the issuer acquires the security or the holder becomes connected with the issuer.

How does section 432 treat gilt-edged securities that have been stripped?

Non-strip gilt-edged securities are excluded from deeply discounted securities treatment under section 432(1)(b). However, gilt strips — portions of a gilt separated into individual interest and principal components traded independently — remain within the deeply discounted securities regime and are not excluded by this provision.

What rules apply to securities issued in tranches under the same prospectus?

Sections 434 to 436 of ITTOIA 2005 provide special rules for securities issued under the same prospectus on different dates. Each tranche is assessed individually because a security issued at one price may not carry a deep discount, while an identical security issued at a different price on a later date might qualify.

Income Tax (Trading and Other Income) Act 2005 section 432

Securities which are not deeply discounted securities

Section 432 identifies certain types of financial instruments that are specifically excluded from being treated as deeply discounted securities, even if they might otherwise meet the general definition.

Company shares, non-strip gilt-edged securities, life assurance policies and capital redemption policies are all excluded from being deeply discounted securities
Excluded indexed securities can only be treated as deeply discounted securities in limited circumstances — specifically where a person connected with the issuer acquires the security, or the holder becomes connected with the issuer
Capital redemption policies take their meaning from the definition used in Chapter 9 of Part 4 of the Act
Separate rules exist for securities issued in tranches under the same prospectus, which may result in those securities being treated as deeply discounted securities or not

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