A summary of the principal tax consequences for holders of Ordinary Shares and Ordinary Share ADRs for citizens or residents of the United Kingdom or the United States is set out below. It is not a complete analysis of all the possible tax consequences of purchase or ownership of these securities. Holders of these securities are advised to consult their own tax advisers with respect to the tax consequences of the purchase and ownership of their Ordinary Shares or Ordinary Share ADRs, including, specifically, the consequences under state and local tax laws in the United States.

The statements regarding the United Kingdom and the United States tax laws and practices set out below are based on those laws and practices in force on the date of this report.

US holders of Ordinary Share ADRs generally will be treated as the owners of the underlying shares for the purposes of the current United States/United Kingdom double taxation conventions relating to income and gains (Income Tax Convention), estate and gift taxes (Estate and Gift Tax Convention) and for the purposes of the US Internal Revenue Code of 1986, as amended (the Code).

In October 1998, the UK and US Governments announced that they had agreed to renegotiate a new Income Tax Convention to replace the existing convention. Discussions started in January 1999 and are continuing. It is not possible to state what, if any, changes may arise for the taxation of dividends or capital gains as a result of the renegotiation, or the likely date for the coming into effect of any new convention.

The following analysis deals with dividends paid after 6th April 1999. Advance Corporation Tax (ACT) was abolished for dividends paid on or after that date.


UK shareholders

Taxation of dividends
From 6th April 1999, the rate of tax credits was reduced to one ninth. As a result of compensating reductions in the rate of tax on dividend income, there is no increase in the tax borne by UK resident individual shareholders. Tax credits are, however, no longer repayable to shareholders with a tax liability of less than the associated tax credit.


Taxation of capital gains
UK shareholders may be liable for UK tax on gains on the disposal of Ordinary Shares or Ordinary Share ADRs. They may also be entitled to indexation relief and taper relief on such sales. Indexation relief is calculated on the market value of shares at 31st March 1982 and on the cost of any subsequent purchases from the date of such purchase. Indexation relief for individual shareholders ceased on 5th April 1998. Taper relief is available to individual shareholders who hold or are deemed to hold shares for at least three years before they are sold.


Inheritance tax
Individual shareholders may be liable to inheritance tax on the transfer of Ordinary Shares or Ordinary Share ADRs. Broadly, this tax is charged on the amount by which the value of the shareholder’s estate is reduced as a result of any transfer by way of gift or other disposal at less than full market value. If exceptional, such a gift or other disposal is subject to both UK inheritance tax and US estate or gift tax. The Estate and Gift Tax Convention would generally provide for tax paid in the United States to be credited against tax payable in the United Kingdom.


Stamp duty
UK stamp duty or, as the case may be, stamp duty reserve tax (SDRT) will, subject to certain exemptions, be payable on the purchase of Ordinary Shares at a rate of 0.5 per cent of the purchase price. There is a minimum charge of £5 where a stamp duty liability arises.

US Shareholders

Taxation of dividends
The gross amount of dividends received (including amounts in respect of associated tax credit and UK withholding tax) is treated as foreign source dividend income for US tax purposes. It is not eligible for the dividend received deduction allowed to US corporations. Dividends on Ordinary Share ADRs are payable in US Dollars; dividends on Ordinary Shares are payable in pounds Sterling. Dividends paid in pounds Sterling will be included in income in the US Dollar amount calculated by reference to the exchange rate on the day the dividends are received by the holder. UK taxes withheld from dividend distributions are eligible for credit against the holder’s US federal income tax liability subject to generally applicable limitations. Each holder’s own tax position will determine whether effective use can be made of credits for UK withholding taxes against the US tax liability.

From 6th April 1999, the rate of tax credits was reduced to one ninth and ACT was abolished. Consequently, claims for refunds of tax credits on dividends paid on or after this date are now of negligible benefit to US shareholders.


Taxation of capital gains
Generally, US holders will not be subject to UK capital gains tax, but will be subject to US tax on capital gains realised on the sale or other disposal of Ordinary Shares or Ordinary Share ADRs.


Estate and gift taxes
Under the Estate and Gift Tax Convention, a US shareholder is not generally subject to UK inheritance tax.


Stamp duty
UK stamp duty or, as the case may be, SDRT will, subject to certain exemptions, be payable on any issue or transfer of Ordinary Shares to the ADR custodian or depository at a rate of 1.5 per cent of their price (if issued), the amount of any consideration provided (if transferred on sale), or their value (if transferred for no consideration).

No SDRT would be payable on the transfer of an ADR. No UK stamp duty should be payable on the transfer of an ADR provided that the instrument of transfer is executed and remains at all times outside the UK. Any stamp duty on the transfer of an ADR would be payable at a rate of 0.5 per cent of the consideration for the transfer. Any sale of the underlying Ordinary Shares would result in liability to UK stamp duty or, as the case may be, SDRT at a rate of 0.5 per cent.

There is a minimum charge of £5 where a stamp duty liability arises.