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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Old rules: convertibles pre 2005: connected companies: transitional rules

Old transitional provisions for connection

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

The connection rules applied to securities held on the date of the announcement of the old rules, 19 December 2001. Before that date, securities could get CG treatment even if the parties were connected. So some securities that previously had CG treatment then fell out of FA96/S92- see CFM82290.

However, FA 2002 allowed two exceptions under the old rules. Where the companies were connected according to the rules at 19 December 2001, but

  • there was a time before 19 December when the parties were not connected, or
  • there was connection through control (FA96/S87(3)) but

    • one company did not wholly own the other, or
    • the two companies were not wholly-owned subsidiaries of a third company

they were not treated as being connected for S92 purposes and the security continued to have chargeable gains treatment.

‘Wholly-owned’ for these purposes meant being a 100% subsidiary.