CG54240 - Qualifying corporate bonds: transitional: debts: company reorganisation
FA96/SCH15/PARA30
The other circumstance where the transitional rules apply is where a person held a debt
- on and immediately after 5 April 1996
- which becomes a relevant discounted security on 6 April 1996
- which was not a qualifying indexed security
- which would not have been treated as a QCB if there had been a disposal of the debt at 5 April 1996, and
- which came to be held by the person as a result of a transaction to which TCGA92/S127 applied.
For further information on qualifying indexed securities, see CG53798.
FA96/SCH15/PARA30 (2)
Where the conditions in CG54240 are met, TCGA92/S116 has effect as if there had been a transaction, on 5 April 1996, by which the person holding the debt had
- disposed of it, and
- immediately reacquired it as a QCB.
The rules in TCGA92/116 (10) require that any gain or loss is computed on the basis that the asset had been sold for a consideration equal to its market value at that date. This gain or loss is then postponed, and crystallises when there is a disposal of the QCB. For further details of the operation of TCGA92/S116, see CG53709+.
Any gain or loss on the debt up to 5 April 1996 will, therefore, come into charge on a disposal of the relevant discounted security. Disposal includes redemption, TCGA92/S251 (2).
TCGA92/S127 applies no disposal/single asset fictions to certain reorganisations of a company's share capital, see CG51700+. This is extended to conversions of securities by TCGA92/S132, see CG55000+; and to share exchanges and company reconstructions and amalgamations, by TCGA92/S135 and TCGA92/S136, see CG52500+.
The aim of this rule is to ensure that any gain or loss attributable to an earlier asset, such as shares, is not taken into the income regime but remains as a chargeable gain or allowable loss.