Finance Act 1996

92 Convertible securities etc.U.K.

(1)This section applies to an asset if—

(a)the asset represents a creditor relationship of a company;

(b)the rights attached to the asset include provision by virtue of which the company is or may become entitled to acquire (whether by conversion or exchange or otherwise) any shares in a company;

(c)the extent to which shares may be acquired under that provision is not determined using a cash value which is specified in that provision or which is or will be ascertainable by reference to the terms of that provision;

(d)the asset is not a relevant discounted security within the meaning of Schedule 13 to this Act;

(e)at the time when the asset came into existence there was a more than negligible likelihood that the right to acquire shares in a company would in due course be exercised to a significant extent; and

(f)the asset is not one the disposal of which by the company would fall to be treated as a disposal in the course of activities forming an integral part of a trade carried on by the company.

(2)The amounts falling for any accounting period to be brought into account for the purposes of this Chapter in respect of a creditor relationship represented by an asset to which this section applies shall be confined to amounts relating to interest.

(3)Only an authorised accruals basis of accounting shall be used for ascertaining those amounts.

(4)Amounts shall be brought into account in computing the profits of the company for the purposes of corporation tax as if the M1Taxation of Chargeable Gains Act 1992 had effect in relation to any asset to which this section applies as it has effect in relation to an asset that does not represent a loan relationship.

(5)For the purposes of that Act the amount or value of the consideration for any disposal or acquisition of the asset shall be treated as adjusted so as to exclude so much of it as, on a just and reasonable apportionment, relates to any interest which—

(a)falls to be brought into account under subsections (2) and (3) above as accruing to any company at any time; and

(b)in consequence of, or of the terms of, the disposal or acquisition, is not paid or payable to the company to which it is treated for the purposes of this Chapter as accruing.

(6)In subsection (5) above the references to a disposal, in relation to an asset, are references to anything which—

(a)is a disposal of that asset (within the meaning of the Taxation of Chargeable Gains Act 1992); or

(b)would be such a disposal but for section 127 or 116(10) of that Act (reorganisations etc.);

and the references to the acquisition of an asset shall be construed accordingly.

[F1(7)Where an asset representing a creditor relationship of a company—

(a)ceases at any time to be an asset to which this section applies, but

(b)does not cease at that time to represent a creditor relationship of that company,

the company shall be deemed for the purposes of the M2Taxation of Chargeable Gains Act 1992 and this Chapter to have disposed of the asset immediately before that time for the relevant consideration, and to have re-acquired it immediately after that time for the relevant consideration.

(8)Any deemed disposal and re-acquisition under subsection (7) above shall be treated for the purposes of that Act of 1992 as a transaction in the case of which—

(a)sections 127 to 130 of that Act would apply, apart from the provisions of section 116 of that Act, by virtue of any provision of Chapter II of Part IV of that Act;

(b)the asset in question represents both the original shares and the new holding for the purposes of those sections;

(c)the market value of the asset at the time of the transaction is an amount equal to the relevant consideration.

(9)Subject to subsection (10) below, in subsections (7) and (8) above “the relevant consideration”, in relation to an asset, means the amount that would have been taken, in accordance with the relevant accounting method, to be the value of the asset at the time of its deemed disposal if that method had been applied to the asset for tax purposes at all times until then.

(10)Subsection (5) above shall not apply in the case of a deemed disposal and re-acquisition under subsection (7) above; but the amount of the relevant consideration in such a case shall be treated for the purposes of the Taxation of Chargeable Gains Act 1992 as reduced by so much (if any) of the amount mentioned in subsection (9) above as is referable to interest which—

(a)is not paid or payable to the company before the time of the deemed disposal; but

(b)is interest falling to be brought into account under subsections (2) and (3) above as having accrued before that time.

(11)In subsection (9) above “the relevant accounting method”, in relation to an asset representing a creditor relationship of a company, means the accounting method which, for the accounting period of that company in which the deemed re-acquisition takes place, is used as respects that asset and the part of that accounting period beginning with the deemed re-acquisition.]