CG17930 - Taper relief: business asset: shares/securities as business assets: meaning of security:

TCGA92/SCHA1/PARA4

TCGA92/SCHA1/PARA4 makes clear that shares (or interests in shares) in a company (referred to as `the relevant company') are business assets at any time if at that time they are shares in a qualifying company.

"Shares" includes "securities"

TCGA92/SCHA1/PARA22(1) defines shares to include securities. Throughout this guidance any reference to shares should therefore be read as also relating to securities.

The definition of securities depends on whether you are looking at periods before or from 6 April 2001.

For disposals of shares before 6 April 2001

The meaning of what is a security for taper relief purposes is not further defined by Schedule A1, nor does TCGA 1992 contain a general definition of what is a security.

Not all debentures will be securities. A security is more than an acknowledgement of indebtedness by a company. TCGA92/S132, which deals with conversions of company securities, gives limited guidance on the meaning of security in the definition in subsection (3)(b). You may accept that a security within the meaning of section 132 TCGA 1992 is a security for the purposes of taper relief.

The meaning given to "security" in TCGA 1992/S132 is also adopted by TCGA 1992/S251(1), which refers to "... the debt on a security (as defined in section 132)". You may accept that a company debenture possessing the characteristics of "the debt on a security" will be a security in the context of TCGA 1992/S132 and that any such debenture will also be a security for taper purposes. The courts have held that a debenture issued by a company will have the characteristics of "the debt on a security" if it is capable of being realised at a profit by the person to whom it was first issued. CG53420 to CG53435 provide guidance on the meaning of a debt on a security.

A debenture issued by a company on or after 16 March 1993, which is not a security, can be deemed to be a security by TCGA 1992/S251(6), see CG53442. But this treatment is only for the purposes of section 251. Schedule A1 does not extend the meaning of security for taper relief purposes to include such debentures. In contrast, TCGA 1992/S117A(10) does provide such an extension in the context of assets that are not qualifying corporate bonds for corporation tax purposes. You should not accept that a company debenture which is only deemed to be a security by section 251(6) is a security for taper relief purposes on a disposal before 6 April 2001.

Where an earn-out right is the subject of a valid election under TCGA 1992/S138A, see CG58022, the Act has effect on the assumption that it is a security within the definition in section 132 (see section 138A(2) and (3)(a)). Although this matter is not free from doubt, you may accept that such earn-out rights count as securities for the purposes of taper relief.

For disposals of shares from 6 April 2001

Subject to certain exceptions mentioned below, shares includes any securities of a company and any debentures of that company that are deemed, by virtue of section s251(6), to be securities for the purposes of that section.

But, for periods before 17 April 2002, the pre-6 April 2001 definition will apply for -

• The conditions for assets other than shares to qualify as business assets (para 5/Sch A1), see CG17936
• The meaning of material interest, see CG17954a
• Paragraph 11 (changes of activity), see CG17919
• Paragraph 11A (periods of inactivity), see CG17921
• Paragraph 12 (value shifting), see CG17922
• The definition of "unlisted company", see CG17953
• Shares acquired in the reconstruction of mutual businesses 2002 (for example building society demutualisations) etc., see CG17914, for shares issued before 17 April 2002.

Example

An individual holds debentures in a close company. The debentures were received in exchange for shares following the reconstruction of a company and are not securities in the ordinary sense but are deemed to be securities for the purposes of s251(6). The shares were acquired in 1996. The company commenced to trade on 4 July 1999. The debentures are disposed of on 3 March 2002. If these had been securities the qualifying holding period would begin on 4 July 1999 as there was then a relevant change of activity, see CG17919. As the debentures are not securities the change of activity provision will not apply to them.

Interest in shares

For disposals of shares before 17 April 2002 the meaning of "interest in shares" is not defined.

For disposals of shares on or after 17 April 2002 "interest in shares" means an interest as a co-owner (whether the shares are owned jointly or in common, and whether or not the interests of the co-owners are equal). Any reference to "interest in debentures", in relation to any debentures, has a corresponding meaning. These definitions apply for periods of ownership on or after 17 April 2002.