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HMRC internal manual

Corporate Finance Manual

Old rules: convertibles pre 2005: ceasing to qualify

Ceasing to be within S92

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

The treatment of a security for the purposes of FA96/S92 was determined at the outset by the terms and conditions of issue. However, a security could ‘fall out’ of S92, where:

  • the parties became connected after issue
  • the entitlement to convert was time limited, and time passed without the option being exercised, or
  • a financial concern appropriated the security to trading stock.

In addition, changes to S92 and the definition of relevant discounted securities meant that, at various points since FA 1996 came into effect, securities had fallen out of S92.

Relevant discounted securities

FA 1999 brought in changes with effect for accounting periods ending on or after 15 February 1999. Securities that were excluded from s92 by the changes in this legislation moved immediately from chargeable gains to income treatment.

Connected parties

The old FA 2002 rules excluding convertibles where the holder and issuer were connected came into force on 19 December 2001. There were, however, two exclusions from this rule - see CFM82150.

Other changes

The other changes to the convertible rules introduced by FA 2002 came into force for accounting periods ending on or after 26 July 2001. The following conditions were introduced.

  • The strict definition of qualifying ordinary shares (CFM82230)
  • The exclusion of asset-linked securities as well as RDS (CFM82170)
  • The exclusion of ‘premium put’ arrangements (CFM82260)
  • The mandatory conversion or exchange of the whole debt for shares (CFM82210).