CG54603 - Deep discount securities: conversion of securities and share exchanges
TCGA92/S118 (3)
It is possible deep discount securities may be involved in transactions which are treated as share reorganisations. For example
- a conversion of securities in which deep discount securities are exchanged for shares or other deep discount securities, TCGA92/S132, see CG55000 onwards.
- a share exchange in which shares or debentures are issued in exchange for deep discount securities, TCGA92/S135, see CG52521.
These transactions are not treated as disposals for Income Tax purposes if
- the new securities are also deep discount securities AND
- they have the same or an earlier redemption date AND
- no consideration is given for the conversion or exchange, ICTA88/SCH4/PARA7 (4).
In other cases there will be a disposal for Income Tax purposes but not for Capital Gains Tax purposes.
If no other consideration is received at the time of the share reorganisation the accrued income charged under the deep discount security legislation is treated as enhancement expenditure which attracts indexation from the date of the transaction.
NOTE. If a taxpayer is within the charge to Capital Gains Tax, neither indexation allowance nor taper relief apply to disposals of assets on or after 6 April 2008. Previously indexation allowance had been frozen at April 1998. Companies and other concerns within the charge to Corporation Tax are not affected by these changes. For indexation allowance see CG17207+ and for taper relief see CG17895+.
If other consideration is received the amount charged under TCGA92/S128 (3), see CG51875, is reduced by the accrued income charged under the deep discount security legislation. If the accrued income is greater than the consideration received the excess is treated as enhancement expenditure incurred at the time of the transaction.