Deeply distressed

There has to be a first time that one must deal with a complicated taxation area and this week it was the turn of ‘deeply discounted securities’ (DDS).

An investment house which manages a client’s portfolio has informed me that one investment it made – in Japanese government stocks – comes within the definition of a DDS.

The gain on their realisation is therefore an income tax matter. I have no dispute with this but what does cause surprise is that the investment house has advised me that according to advice it has received the gain must be split into two elements.

First the amount chargeable to income tax is the gain on the investment in local currency converted into sterling at the rate applying at the time of disposal.

Second the exchange gain/loss on the local currency between acquisition and disposal is...