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

gains/losses’’ in either case in the statement of total return for the accounting period in accordance
with the Statement of Recommended Accounting practice relating to Authorised Unit Trust Schemes
issued by the Investment Management Regulatory Organisation Limited in January 1997, as it or any
subsequent Statement of Recommended Accounting practice replacing it is modified, revised or
amended from time to time.
U.K. Individuals
If the Issuer is classified as a partnership, an individual resident in the U.K. and holding Preferred Securities
should be subject to U.K. income tax as a partner in respect of Distributions on the Preferred Securities.
U.K. individuals disposing of Preferred Securities may in practice be treated as if they had disposed of their
underlying share of the Notes held by the Issuer. The Notes are not qualifying corporate bonds and
accordingly, a disposal of Preferred Securities by a holder resident or ordinarily resident for tax purposes in
the U.K. or who carries on a trade, profession or vocation in the U.K. through a branch or agency to which
the Preferred Security is attributable may give rise to a chargeable gain or allowable loss for the purposes of
taxation of capital gains. In calculating any gain or loss on disposal of a Preferred Security, sterling values
are compared at acquisition and transfer. Accordingly, a taxable profit can arise even where the foreign
currency amount received on a disposal is less than or the same as the amount paid for the Preferred
Security. A transfer of a Preferred Security by a U.K. individual could also give rise to a charge under the
‘‘accrued income scheme’’.
If the Issuer is classified as a unit trust scheme, a U.K. resident individual holding Preferred Securities would
be charged to income tax on Distributions. Any profit or gain on disposal of the Preferred Securities would
be liable to capital gains tax and the accrued income scheme could not apply.
If the Issuer is classified as an offshore fund, then a U.K. resident individual would be liable to income tax
on Distributions and on any profit on disposal of Preferred Securities.
(b)
Distributions on the Preferred Securities
Payments of Distributions on Preferred Securities may be made without withholding for or on account of
UK taxation.
(c)
Stamp Duty and Stamp Duty Reserve Tax (‘‘SDRT’’)
No UK stamp duty will be chargeable in respect of the issue of the Preferred Securities to a Holder.
Transfers of the Preferred Securities within a clearing system should not be chargeable to UK stamp duty
unless such transfer is effected by means of a written instrument.
No liability to SDRT should arise in respect of the issue or subsequent transfer of the Preferred Securities.
(d)
Proposed EU Directive on the Taxation of Savings Income
On 21 January 2003, the European Commission published revised proposals for a draft directive to ensure
effective taxation of savings income in the form of interest payments within the European Community.
Subject to a number of important conditions being met, it is proposed that Member States will be required to
provide to the tax authorities of another Member State details of payments of interest or other similar
income paid by a person within its jurisdiction to an individual resident in that other Member State, subject
to Belgium, Luxembourg and Austria instead operating a withholding system for a transitional period in
relation to such payments. The Directive is not yet final and may be subject to further amendment and/or
clarification.
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