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HMRC internal manual

Corporate Finance Manual

Old rules: convertibles pre 2005: selling and purchasing securities

Disposals and acquisitions

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

Where a security fell within FA96/S92, and was sold or purchased, the consideration brought into account under TCGA 1992 was adjusted, under S92(5), for any interest that had accrued since the last payment date. This ensured that only amounts relating to interest were brought in under loan relationships, and these were excluded from the consideration.

There was a similar provision in S92(5A) to (5D) for exchange gains and losses.

Disposal would include the exchange of the security either on conversion or in a reorganisation of a company’s share capital (TCGA92/S127 to S130) as well as the straightforward sale of the security.


AX Ltd held securities with a face value of £100,000 issued by BH Ltd on 1 July 2002, redeemable or exchangeable on 30 June 2005. AX Ltd and BH Ltd were not connected. The securities carried the right to be exchanged for shares in CV Ltd at the rate of £1 of shares for every £2 of debt. The securities carried interest at 2% per annum, payable annually on 30 June.

On 31 December 2004, AX Ltd sold the securities to DY Ltd for £125,000, reflecting

  • the increasing value of the shares in CV Ltd
  • the right to receive interest for the year ended 30 June 2005.

Loan relationships

AX Ltd would bring in the £1,000 interest accrued between 1 July and 31 December 2004.

Chargeable gains

The interest accruing from 1 July to 31 December 2004 was excluded from the disposal consideration. AX Ltd’s chargeable gain on the disposal would be based on

  • acquisition cost £100,000
  • disposal value £124,000.

Comparison with accounting treatment

When a convertible security is sold, any profit or loss will be taken to P&L. Where the security was within S92 this profit or loss would have been adjusted to exclude from income treatment any amounts that did not relate to interest or exchange gains and losses.