ERSM40080 - Convertible securities: amount of gain on chargeable event

How to calculate AG

The Taxable Amount described in ERSM40070 uses AG - CE. The method of calculating the amount of gain (AG) differs for each type of chargeable event.

Conversion of securities
Disposal of securities
Release of entitlement to convert
Receipt of benefit in money’s worth in connection with the entitlement to convert

Conversion of securities

Where the chargeable event is the conversion of the securities, the amount of the gain is;

CMVCS - (CMVERS + CC)

where:

  • CMVCS is the market value of the securities acquired on conversion at the time of the chargeable event. (If the securities acquired on conversion are themselves convertible, apply the market value as if they were not convertible)
  • CMVERS is the market value of the original securities at the time of the chargeable event calculated as if they were not convertible.
  • CC is the amount of any consideration given by the employee (or associated person) for the conversion of the securities (distinct from consideration given for the entitlement to convert).

See ITEPA03/S441(2).

Disposal of securities

Where the chargeable event is the disposal of the securities, the amount of the gain is;

DC - CMVERS

where:

  • DC is the amount of consideration given by the person subsequently acquiring the securities, and
  • CMVERS is the market value of the securities at the time of the chargeable event calculated as if the securities were not convertible.

By deducting the non-convertible market value of the securities, the taxable amount is limited to the value received from the sale of the conversion rights - see ITEPA03/S441(3).

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Release of entitlement to convert

The amount of the gain is the amount of the consideration received by the employee (or an associated person) for releasing the entitlement to convert the securities.

Where the consideration received is an asset rather than money, the amount of the consideration is the market value of that asset (see ERSM20390) - see ITEPA03/S441(4).

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Receipt of benefit in money’s worth in connection with the entitlement to convert

The amount of the gain is the amount or market value of the benefit received - see ITEPA03/S441(5).