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HMRC internal manual

Capital Gains Manual

Conversion of securities: change in status of debt S88 FA 1997

By treating the occasion on which the tax status of the debt is claimed to have changed as a conversion of securities, TCGA92/S132 (1) is applied. This would treat the conversion in the same way as a reorganisation of the company’s share capital, within TCGA92/S127 to TCGA92/131. Where, however, there would be a reorganisation which involves a QCB on one `side’ of the conversion (but not both) the rules in TCGA92/S116 apply instead, see CG53709+. If the conversion is from a debt which is not a QCB into a debt which is a QCB, TCGA92/S116 (10) applies, see CG58845+. There is no disposal at the time of the conversion, but any gain (or loss) which would have arisen on a disposal of the debt at its market value at the date of conversion is computed under TCGA92/S116 (10)(a). This gain (or loss) is then held over until disposal of the QCB, TCGA92/S116 (10)(b). This treatment therefore ensures that any gain or loss on the original asset, such as shares, as well as on the debt itself up to the time of the conversion into the QCB, remains within the charge to Capital Gains tax.