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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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Securities with Artificially Depressed Value

Convertible securities: consideration for entitlement to convert

ITEPA03/S446G amends the effect of ITEPA03/S442 where the market value of the convertible securities (determined as if they were not) has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the acquisition.

In ITEPA03/S442, consideration is to be regarded as given for the entitlement to convert the employment-related securities if (and only if) ACS exceeds NCMV.

So where ITEPA03/S446G applies, the value of NCMV is increased by the amount of the depreciatory transaction. This effectively reduces any allowance given by ITEPA03/S442.


In ITEPA03/S442 (5):

NCMV is “the market value of convertible securities at the time of acquisition, determined as if they were not convertible (or not an interest in convertible securities)”.

ACS is “the amount of the consideration given for the acquisition of the employment-related securities”.