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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
, see all updates

Old rules: convertibles pre 2005: connected companies

Connected companies

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

FA96/S92 did not apply where there was a connection between

  • the issuing company, and
  • the company buying the security

when the security was issued (S92(1E)). See also CFM82160which covers situations where the parties to the loan relationship became connected at a later date.

Definition of connection

The definition of connection under the old rules was the one used in FA96/S87 (3). There was a connection if

  • the issuing company controlled the company holding the security, or
  • the company holding the security controlled the issuing company, or
  • both companies were under the common control of the same person.

When companies became connected

If the companies were not connected when the security was issued, but became connected at a later time,

  • FA96/S92 no longer applied to the security, and
  • there was a deemed disposal and re-acquisition for chargeable gains purposes.

From that time onwards, credits and debits were brought into account according to the loan relationship rules.

There is more detail of the tax effect under the old rules of companies becoming connected and the security therefore falling out of S92 at CFM82160.

Companies ceasing to be connected

The legislation did not have the opposite effect. If the parties were

  • connected on issue, so that S92 did not apply, and then
  • ceased to be connected,

the holder could not then have the S92 treatment.