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.
|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)|