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The rules on deeply discounted securities were extended to apply to strips of bonds issued other than by governments (referred to as 'corporate strips') acquired after 1 December 2004, unless acquired under an agreement entered into before that date¹.

These provisions were essentially an anti-avoidance measure designed to counter particular schemes involving these types of strips. The schemes involved taking normal interest bearing securities issued by companies and stripping the rights to some or all of the coupons from the principal repayment. The resultant rights had a value that was less than the amount that would eventually be paid by the issuer in respect of them and so produce the effect of discount. But the rights were not taxed as deeply discounted securities because the underlying security from which they derived was not issued at a discount.

Legislation was therefore introduced to ensure that any profit or redemption of corporate strips is