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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
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Old rules: convertibles pre 2005: conditions for holder

Conditions for S92 to apply: holder of the security

This guidance applies to periods of account beginning before 1 January 2005

FA96/S92(1)(f) stated that the security must ‘not be one, the disposal of which 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’.

In other words, any convertible securities, a profit on which fell to be treated as a trading receipt by, for example, banks or other financial traders, would not get chargeable gains treatment. The profits would be taxed as income under the loan relationship rules, the same as other securities held as trading stock. Note that a company did not have to be a financial trader for securities to be held as an ‘integral part of the trade’, though those circumstances were likely to be extremely rare.

Life assurance companies

That exception did not apply to a life assurance company holding the security in connection with its basic life assurance and general annuity business where the I minus E basis was applied to it. See the Life Assurance Manual and FA96/SCH11/PARA1(1A).