CFM82170 - Old rules: convertibles pre 2005: nature of the security

Nature of a convertible security

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

There were four conditions dealing with the nature of the security which all had to be satisfied before you could be sure that the FA96/S92 treatment applied. If the security fulfilled those conditions, it was also necessary to check the nature of the shares and the return on the investment.

	Condition	Guidance	Legislation
1	The terms allowed the holder of the security to acquire, by conversion or exchange, shares in a company, and	CFM82180	s92(1)(b)
2	the likelihood of the holder exercising that right to acquire shares to a significant extent was more than negligible, and	CFM82190	s92(1)(e)
3	the terms of the security didn’t give the shares a predetermined value, and	CFM82200	s92(1)(c)
4	on conversion, the security was wholly replaced by shares (although a small cash adjustment was allowable if a whole number of shares couldn’t be issued).	CFM82210	s92(1)(ee)