News Release
Information Memorandum for Issues of British Government Stock
27 March 1997
Introduction
This memorandum relates to British Government Stock issued by the Bank of England after 1 April 1997, including further amounts of Stocks first issued before that date (a list of Stocks and the amounts outstanding is available on request from the Bank of England at the address on the final page of this memorandum). It sets out some of the important terms of such Stock and information relating to it, including information about public auctions of Stock conducted by the Bank of England. For further information on the Bank of England's operations in the market see the Bank of England's Operational Notice of June 1996 (also available on request). This memorandum supplements, and is subject to, the specific terms and information set out in the prospectus or notice relating to each particular issue of Stock. Where a further amount is issued of an existing Stock, this memorandum is subject also to the provisions of the prospectus or notice under which the Stock was first issued.
General
1. The principal of and interest on the Stock will be a charge on the National Loans Fund, with recourse to the Consolidated Fund of the United Kingdom.
2. The arrangements for the maintenance of registers of stockholders, for transfer of Stock and for payment of interest on Stock will be governed by the applicable legislation. The current position is as follows:
(i) The Stock will be registered at the Bank of England or at the Bank of Ireland, Belfast.
(ii) The Stock may be held on the National Savings Stock Register if the prospectus or notice under which the Stock was first issued provides for this.
(iii) Stock registered at the Bank of England held for members of the Central Gilts Office ("CGO") Service will be transferable by exempt transfer in accordance with the Stock Transfer Act 1982 and the relevant subordinate legislation. Stock will also be transferable by instrument in writing in accordance with the Stock Transfer Act 1963.
3. Stock is transferable in multiples of one penny. Interest payments will be made by credit to a bank or building society account in accordance with the holder's instructions or, if no such instructions have been received, by interest warrant sent by post.
Index-Linked Stocks
4. Both the principal of and the interest on an index-linked Stock are indexed to the General Index of Retail Prices. The Index figure relevant to the month of issue of any Stock will be stated in the prospectus or notice relating to the issue. The Index figure relevant to any month is that published seven months previously and relating to the month before the month of publication. For index-linked Stock first issued before January 1987, the calculations of interest and principal will take account of the revision of the Index to a new base of January 1987=100 (on the old base the Index for January 1987 was 394.5).
Strips
5. If reference is made in the prospectus or notice to the Stock being strippable or potentially strippable, paragraphs 6 and 7 below apply.
6. It is intended that, upon the introduction of an official facility for the stripping of gilt-edged securities, the Stock will be strippable subject to the terms of that facility. (A list of stocks intended to be strippable is available on request from the Bank of England at the address on the final page of this memorandum.) The starting date for an official strips facility will be announced in due course. Before the starting date, the Bank will publish a memorandum describing the applicable arrangements. Interest payments on Stocks intended to be strippable are paid without deduction of United Kingdom income tax. However, the interest on these Stocks has a United Kingdom source and may, in certain circumstances, be chargeable to income tax by direct assessment (see paragraph 18 (i) below).
7. Further details of the tax treatment of securities resulting from the stripping of Stock will be determined at or prior to the commencement of an official strips facility. Accordingly, the availability and terms of the exemptions from tax in paragraphs 19 to 22 below in relation to such stripped securities are subject to modification.
METHODS OF APPLICATION FOR STOCK
Auctions
8. Most auctions of Stock make provision for bids to be made on a competitive or non-competitive basis, as set out below. Any differences applicable to a particular auction will be as set out in the relevant prospectus.
9. Bids must be submitted to the Bank of England on the application form published with the prospectus, except that gilt-edged market makers may bid by telephone to the Bank of England. Only one bid may be submitted on any one application form.
10.Application forms should arrive at the Bank of England by the date and time specified in the prospectus for their receipt (the "latest specified time"). However the Bank of England reserves the right (but is not obliged) to accept applications which are received through the post later than this provided that the cover bears a legible postmark not later than the latest specified time. The Bank will not usually exercise its power to accept an application received late unless it was posted early enough for it to have been reasonable to expect it to arrive before the latest specified time.
11. Competitive bids
(I) Each competitive bid must be for one amount and at one price expressed as a multiple of 1/32nd of £1 and must be for a minimum of £500,000 nominal of Stock and for a multiple of Stock as follows:-
| Amount of Stock applied for | Multiple |
| £500,000-£1,000,000 | £100,000 |
| £1,000,000 or greater | £1,000,000 |
(ii) PAYMENT IN FULL AT THE PRICE BID (plus accrued interest or less rebate interest, if applicable) must be made by a CHAPS payment (except for applicants who have requested that any Stock sold to them be credited direct to an account in the CGO Service - see paragraph 13 below). Each CHAPS payment must be sent to the Sterling Banking Office, Bank of England (Sort Code 10-00-00) for the credit of "New Issues" (Account Number 58560009) quoting the reference "AUCTION" to arrive not later than the date and time specified for such payments in the prospectus. CHAPS payments must be debited to an account in the name of the applicant (or an account in the joint names of the applicant and one or more others) held with a bank or building society in the United Kingdom.
(iii) The Bank of England reserves the right to reject any competitive bid or any part of any competitive bid. Subject to this, competitive bids will be ranked in descending order of price and Stock will be sold to applicants whose competitive bids are at or above the lowest price at which the Bank of England decides that any competitive bid should be accepted (the "lowest accepted price"). APPLICANTS WHOSE COMPETITIVE BIDS ARE ACCEPTED WILL PURCHASE STOCK AT THE PRICES AT WHICH THEY BID (plus accrued interest or less rebate interest, if applicable). Competitive bids which are accepted and which are made at prices above the lowest accepted price will be satisfied in full. Competitive bids which are accepted and which are made at the lowest accepted price may be satisfied in part only. No sale will be made of an amount less than £1,000 nominal of Stock.
12. Non-competitive bids
(I) A non-competitive bid must be for not less than £1,000 nominal and (except in the case of a bid made by a gilt-edged market maker) for not more than £500,000 nominal of Stock, and must be for a multiple of £1,000 nominal of Stock.
(ii) Only one non-competitive bid may be submitted for the benefit of any one person. Multiple applications or suspected multiple applications are liable to be rejected. Only one non-competitive bid may be submitted on any one application form.
(iii) A separate cheque representing PAYMENT AT THE RATE SPECIFIED IN THE PROSPECTUS must accompany each non-competitive bid (except for applicants who have requested that any Stock sold to them be credited direct to an account in the CGO Service - see paragraph 13 below); cheques must be drawn on a bank in, and payable in, the United Kingdom, the Channel Islands or the Isle of Man.
(iv) The Bank of England reserves the right to reject any non-competitive bid. Non-competitive bids which are accepted will be accepted in full at the non-competitive sale price (plus accrued interest or less rebate interest, if applicable). The non-competitive sale price will be EQUAL TO THE AVERAGE OF THE PRICES AT WHICH COMPETITIVE BIDS HAVE BEEN ACCEPTED, the average being weighted by reference to the amount accepted at each price and ROUNDED DOWN TO THE NEAREST MULTIPLE OF 1/32ND OF £1.
(v) If the non-competitive sale price (plus accrued interest or less rebate interest, if applicable) is less than the amount paid by cheque on application, the excess amount paid will be refunded by cheque sent by post at the risk of the applicant.
(vi) If the non-competitive sale price (plus accrued interest or less rebate interest, if applicable) is greater than the amount specified in the prospectus as being payable on application, applicants whose non-competitive bids are accepted may be required to make a further payment equal to the excess. The Bank of England will notify applicants from whom a further payment is required by letter of the amount of Stock allocated to them and of the further payment due (except for applicants who have requested that any Stock sold to them be credited direct to a CGO account). Such a notification will not entitle an applicant to transfer the amount of Stock so allocated. The despatch of certificates to such applicants will be delayed until the further payment has been made.
(vii) Each gilt-edged market maker may bid non-competitively for up to 0.5% of the Stock on offer at an auction.
13. Applications for Stock to be credited to a CGO account Members of the CGO Service may, by completing the appropriate section of the application form, request that any Stock sold to them be credited direct to their account in the CGO. Stock sold to gilt-edged market makers as a result of telephone bids will be credited to their CGO account. Deliveries will be made on the date specified in the prospectus, by means of a member-to-member delivery from an account in the name of the Bank of England, Number 2 Account. Applicants who are not members of the CGO Service may similarly request that any Stock sold to them be credited direct to a CGO account in the name of a CGO member, provided they have made any necessary arrangements to ensure that the CGO member will be willing to receive the Stock. The consideration to be input in respect of the delivery will be the amount payable by the applicant on the sale of the Stock at the price bid in the case of a competitive bid, or at the non-competitive sale price in the case of a non-competitive bid (in either case plus accrued interest or less rebate interest, if applicable).
14. Other applications
Stock sold to applicants who have not requested that Stock sold to them be credited direct to a CGO account will be registered in accordance with the instructions given in the application form. A certificate in respect of the Stock sold and (where applicable) a cheque for any excess amount paid will be sent by post at the applicant's risk. The Bank of England may at its discretion withhold despatch of a cheque or certificate until the applicant's cheque has been paid, or CHAPS payment received, and any verification of identity has been completed. In such cases the Bank of England will notify the applicant by letter of the acceptance of the application and of the amount of Stock allocated subject to receipt of payment or verification of identity. This notification will not entitle the applicant to transfer the Stock so allocated. If an application is rejected a cheque for any amount paid on application will be returned to the applicant by post at the applicant's risk.
15. Default in payment
The Bank of England may at its discretion cancel any sale of Stock if the applicant defaults in making due payment. Where the applicant has requested that Stock be credited direct to a CGO account there will be a default in making due payment if the relevant CGO member fails to accept the delivery by the deadline for member-to-member deliveries on the due date for such deliveries specified in the prospectus. In any other case there will be default in making due payment if the applicant's cheque is not paid on first presentation (in the case of a non-competitive bid) or if the applicant's CHAPS payment is not received by the relevant time on the due date for such payments specified in the prospectus (in the case of a competitive bid). If the Bank of England accepts payment after the due date it may charge interest on the amount payable, in respect of the period from the due date to the date of payment, at a rate equal to the London Inter-Bank Offered Rate for one week deposits in sterling (LIBOR) plus 1% per annum. The Bank of England will determine this rate by reference to market quotations for LIBOR on the due date for payment, obtained from such source or sources as it may consider appropriate.
16. General
(I) The Bank of England reserves the right to require evidence of the identity of any applicant for Stock or of any person for whom an applicant is acting as agent. Failure to provide satisfactory evidence of identity may result in delays in delivery to CGO accounts and in registration and despatch of certificates. In addition if, for whatever reason, such evidence of identity is not provided as soon as is reasonably practicable (in the Bank of England's determination) and in any event within 21 days after the auction, the Bank of England may reject the application or cancel the sale of any Stock, and take any other action it may think fit.
(ii) Cancellation of a sale of Stock for any reason will not affect the non-competitive sale price or any other sale of Stock.
(iii) The Bank of England may sell less than the full amount of the Stock on offer at the auction and may decide not to sell any of the Stock.
"Tap" Sales
17. The Bank of England from time to time conducts sales of Stock by "tap" to gilt-edged market makers. These sales are not open direct to the general public. Bids may be made by gilt-edged market makers in accordance with the Bank of England's Operational Notice dated June 1996.
TAXATION
General
18. The general taxation position for gilt-edged securities, under current legislation, is broadly as follows:
(I) Income tax will be deducted from interest payments unless a relevant exception applies. Interest payments will be paid without deduction of income tax where a direction of Her Majesty's Treasury under Section 50 of the Income and Corporation Taxes Act 1988 has been issued in respect of the Stock. (A list of Stocks in respect of which Section 50 directions have been issued is available from the Bank of England at the address on the final page of this memorandum.) However, as interest on such Stocks has a United Kingdom source, it may in certain circumstances be chargeable to United Kingdom income tax by direct assessment.
(ii) The Stock is or will be specified as a gilt-edged security for the purposes of Schedule 9 to the Taxation of Chargeable Gains Act 1992. Accordingly, a disposal of the Stock will not give rise to a chargeable gain or allowable loss for the purposes of capital gains tax.
(iii) Gilt-edged securities which are not strips are not "relevant discounted securities" for the purposes of Schedule 13 to the Finance Act 1996. Thus, for a holder of Stock who is neither trading in the Stock nor within the charge to corporation tax in respect of it, United Kingdom income tax arising in relation to holdings of the Stock will generally be limited to income tax on interest received or, in certain circumstances, accrued.
(iv) For a holder within the charge to corporation tax, a holding of Stock will be a "loan relationship" to which the provisions of Chapter II of Part IV of the Finance Act 1996 will apply.
(v) Transfers of Stock, whether made through the CGO Service or by instrument in writing, are free of stamp duty.
STOCKS FREE OF TAX TO RESIDENTS ABROAD ("FOTRA") (a list of FOTRA stocks is available from the Bank of England at the address on the final page of this memorandum)
19. If reference is made in the prospectus or notice to provision for exemption from United Kingdom taxation in favour of non-resident holders of the Stock, the following provisions apply, except in the case of 3 1/2% War Loan where the provisions are as set out in the prospectus.
20. Stock first issued prior to 29 April 1996
In the case of further issues of a Stock first issued prior to 29 April 1996, the provisions are as follows:
(I) The Stock and the interest payable thereon will be exempt from all United Kingdom taxation, present or future, so long as it is shown that the Stock is in the beneficial ownership of persons who are neither domiciled nor ordinarily resident in the United Kingdom.
(ii) Further, the interest payable on the Stock will be exempt from United Kingdom income tax, present or future, so long as it is shown that the Stock is in the beneficial ownership of persons who are not ordinarily resident in the United Kingdom.
(iii) These exemptions will not apply so as to exclude the interest from any computation for taxation purposes of the profits of any trade or business carried on in the United Kingdom.
(iv) These exemptions are also subject to paragraph 22 below.
21. Stock first issued after 29 April 1996
The provisions are different for Stocks first issued after 29 April 1996. For these Stocks the provisions are as follows:
(i) The Stock and the interest payable thereon will be exempt from all United Kingdom taxation, present or future, so long as it is shown that the Stock is in the beneficial ownership of persons who are not ordinarily resident in the United Kingdom.
(ii) This exemption will not apply so as to exclude the Stock or the interest payable thereon from any computation for taxation purposes of any income, profits or gains derived from any trade or business carried on in the United Kingdom.
(iii) This exemption is also subject to paragraph 22 below.
22. General
(I) For the purposes of paragraphs 20 and 21 above, persons are not ordinarily resident in the United Kingdom if they are regarded as not ordinarily resident for the purposes of United Kingdom income tax.
(ii) The exemptions set out in paragraphs 20 and 21 above are subject to the following limitations:
(a) the exemptions are subject to the provisions of any law, present or future, of the United Kingdom directed to preventing avoidance of taxation by persons resident or ordinarily resident in the United Kingdom. In particular, no amount in respect of the Stock or the interest payable thereon will be exempt from income tax where, under any such provision, it falls to be treated for the purpose of the Income Tax Acts as income of any person resident or ordinarily resident in the United Kingdom;
(b) the exemptions will not entitle a person to claim any repayment of tax unless the claim is made within the time limit provided for under applicable legislation. In general, such a claim will be within the time limit if it is made within five years from the 31 January following the year of assessment to which it relates.
(iii) Where relevant, applications for exemption from United Kingdom income tax should be made in such form as may be required by the Commissioners of Inland Revenue. The appropriate forms may be obtained from the Inland Revenue, Financial Intermediaries and Claims Office, Fitz Roy House, PO Box 46, Nottingham, NG2 1BD.
GOVERNMENT STATEMENT
23. Attention is drawn to the statement issued by Her Majesty's Treasury on 29 May 1985 which explained that, in the interest of the orderly conduct of fiscal policy, neither Her Majesty's Government nor the Bank of England or their respective servants or agents undertake to disclose tax changes decided on but not yet announced, even where they may specifically affect the terms on which, or the conditions under which, Stock is issued or sold by or on behalf of the Government or the Bank; that no responsibility can therefore be accepted for any omission to make such disclosure; and that such omission shall neither render any transaction liable to be set aside nor give rise to any claim for compensation.
REVISION
24. This memorandum may be supplemented or revised from time to time. Any such supplement or revision will be announced in a notice issued by the Bank of England, and will take effect from a date to be specified in that notice.
Copies of this Information Memorandum and the stock lists referred to in this document are available from the Bank of England, Registrar's Department, Southgate House, Southgate Street, Gloucester GL1 1UW (telephone 01452 398123; fax 01452 398449)*. The Information Memorandum is also available on the Bank of England's website: bankofengland.co.uk
* The Bank’s postal brokerage service has been discontinued but an equivalent service is being offered by the UK Debt Management Office and Computershare. See Related Links box above for further information.
