SolvedCFM82170 | Old rules: convertibles pre 2005: nature of the security
From HM Revenue & Customs · Corporate Finance Manual
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.
| Condition | Guidance | Legislation | |
|---|---|---|---|
| 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) |