HBOS Capital Funding No. 1 L.P. HBOS plc - Lloyds Banking Group

TAXATION
General
Prospective investors should inform themselves as to the tax consequences within the countries of their residence
and domicile of the acquisition, holding or disposal of Preferred Securities. The comments below are of a general
nature based on law and practice as at the date hereof in each jurisdiction referred to and do not constitute tax or
legal advice. They relate only to the position of persons who are the absolute beneficial owners of their Preferred
Securities and may not apply to certain classes of persons such as the Managers. Any holders who are in doubt as
to their personal tax position should consult their professional advisers. In assessing their tax position investors
should note that HBOS Capital Funding No. 1 L.P. is a Jersey limited partnership and not a legal entity separate
from its partners.
Jersey Taxation
Holders of Preferred Securities (other than residents of Jersey) are not subject to any tax in Jersey in respect of
the holding, exchange, sale or other disposal of the Preferred Securities. Distribution payments may be made by
the Issuer without withholding or deduction for, or on account of, and without, any payment of Jersey income tax.
No stamp duties are payable in Jersey on the acquisition, ownership, exchange, sale or other disposal of Preferred
Securities. Probate or Letters of Administration may be required to be obtained in Jersey on the death of a holder
of a Preferred Security with an estate in Jersey, including Preferred Securities. Stamp duty is payable in Jersey on
the registration of such Probate or such Letters of Administration on the value of the deceased’s estate in Jersey.
U.K. Taxation
(a)
Position of U.K. Investors
Classification of HBOS Capital Funding No. 1 L.P.
HBOS has been advised that the Issuer should be classified as a partnership (and not as a unit trust scheme
or offshore fund) for U.K. tax purposes. Accordingly, Holders who are U.K. resident, or in the case of
individuals, ordinarily resident in the U.K. for tax purposes should, broadly, be subject to U.K. taxation as if
they are partners in the Issuer and hold their proportionate share of the Issuer’s assets. It is possible,
however, that the Inland Revenue may seek to treat U.K. investors in the Issuer as holding interests in a
‘‘unit trust scheme’’ and/or an ‘‘offshore fund’’. The following paragraphs summarise the anticipated tax
consequences for certain categories of U.K. investor if these alternative classifications of the Issuer were to
prevail. U.K. investors who are in any doubt as to their tax position in respect of the Preferred Securities
(or on exchange of Preferred Securities for Substituted Preference Shares) are strongly recommended to take
independent professional advice.
U.K. Pension Funds
Whether the Issuer is classified as a partnership, unit trust or offshore fund, exempt approved pension funds
should not be subject to U.K. tax on any return from their holding of Preferred Securities (including any
profit on transfer or redemption) provided that such returns do not constitute trading profits.
U.K. Traders/Dealers
The U.K. tax treatment of U.K. persons holding the Preferred Securities on trading account should be
unaffected by the classification of the Issuer for U.K. tax purposes.
U.K. Corporate Investors
(a) For accounting periods commencing before 1 October 2002
If the Issuer is classified as a partnership, then the tax position of U.K. resident corporate holders of
Preferred Securities should be computed under Inland Revenue Statement of Practice SP4/98. Under
this Statement of Practice U.K. corporate holders should be treated, broadly speaking, as being
entitled for the purposes of the ‘‘loan relationship’’ rules in the Finance Act 1996 to their appropriate
share of the debits and credits arising in respect of the Issuer’s ownership of the Notes, other than such
debits and credits arising to the Issuer in respect of foreign exchange gains and losses relative to the
Issuer’s functional currency for U.K. tax purposes (US dollars), which will instead be treated as
apportioned to such holders for the purposes of the ‘‘foreign exchange gains and losses’’ rules in the
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