The government has announced retrospective legislation for debt buy-backs. The changes will be made in the next Finance Bill. The new rules relate to the purchase of debt at a discount by a company connected to the debtor. Where a debtor company buys its own debt for less than face value it will normally be taxed on the discount profit as shown in its accounts. Before 14 October 2009, it was possible to rely on an exception to this general rule where the debt was acquired by the purchaser on arm's length terms and the purchaser was not connected to the debtor at any time during the three-year period ending 12 months before the purchase. In the new rules, which will be effective from the announcement yesterday, the government has narrowed the exception, which it claims was originally intended to help company rescues. It believes the rules have been abused by healthy groups of companies taking advantage of market conditions to buy back their own debt at a discount through newly formed companies. Such a buy-back will now only be tax neutral if: there has been a change in ownership of the debtor in the period of 12 months before the debt purchase; the debt purchase has been intrinsic to the change of ownership; and before the change of ownership, the debtor was suffering severe financial problems. Details of the proposed legislation may not be available until the release of the Finance Bill, which is likely to be in spring 2010. Law firm Lovells believes this leads to uncertainty for some companies, and is another example of legislation 'by press release', since the announcement of the changes was made in a 'quiet corner of the Parliament website'.