Finance Act 1990

Qualifying convertible securities

2(1)For the purposes of this Schedule a security is a qualifying convertible security at the time of its issue if—

(a)it fulfils each of the first eight conditions mentioned below, and

(b)it fulfils the ninth condition mentioned below (where it applies) or it fulfils the ninth and tenth conditions mentioned below (where they apply).

(2)The first condition is that the security was issued by a company on or after 9th June 1989.

(3)The second condition is that the security—

(a)is not a share in a company,

(b)is redeemable, and

(c)was not issued in circumstances such that, by virtue of section 209(2)(c) of the Taxes Act 1988, it (or part of it) constituted or fell within a distribution of a company.

(4)The third condition is that at the time the security was issued it was quoted in the official list of a recognised stock exchange.

(5)The fourth condition is that under the terms of issue—

(a)the security can be converted into ordinary share capital in the company which issued it,

(b)the security either carries no right to interest, or carries a right to interest at a rate which is fixed (as opposed to variable) and determined at the time of issue, and

(c)any amount payable on redemption (at any time), and any amount payable by way of interest, is payable in the currency in which the issue price is denominated.

(6)The fifth condition is that at the time of issue of the security it is subject to one (and one only) qualifying provision for redemption.

(7)The sixth condition is that the yield to redemption for the relevant redemption period represents no more than a reasonable commercial return; and the relevant redemption period is the redemption period which ends with the day on which the occasion for redemption under the qualifying provision for redemption falls.

(8)The seventh condition is that the security—

(a)is a deep discount security but would not be one if it were not for the qualifying provision for redemption, or

(b)is a deep gain security but would not be one if it were not for the qualifying provision for redemption;

and paragraph 21 of Schedule 4 to the Taxes Act 1988, and paragraph 22B(1) of Schedule 11 to the [1989 c. 26.] Finance Act 1989, shall be ignored in construing paragraphs (a) and (b) above.

(9)The eighth condition is that the obtaining of a tax advantage by any person was not the main benefit, or one of the main benefits, that might be expected to accrue from issuing the security.

(10)The ninth condition applies where the security carries a right to interest, and is that—

(a)the first (or only) interest payment day falls on a day which bears the same date in the month as the day of issue bears, but which occurs in the sixth month after the month in which that day falls, or

(b)the first (or only) interest payment day falls on the first anniversary of the day of issue.

(11)The tenth condition applies where there is more than one interest payment day, and is that—

(a)if sub-paragraph (10)(a) above applies, each interest payment day (other than the first) falls on a day which bears the same date in the month as the interest payment day immediately preceding it bears, but which occurs in the sixth month after the month in which that day falls;

(b)if sub-paragraph (10)(b) above applies, each interest payment day (other than the first) falls on the first anniversary of the interest payment day immediately preceding it.

(12)If a security is quoted in the official list of a recognised stock exchange at a time after it was issued but before the end of the qualifying period, for the purposes of sub-paragraph (4) above it shall be deemed to have been quoted in that list at the time it was issued; and the qualifying period is the period of one month beginning with the day on which the security was issued.