CFM16785 - Taxing loan relationships: share-linked securities: taxing the issuer: conditions for chargeable gains treatment


This guidance applies to periods of account beginning on or after 1 January 2005

Issuer of share-linked security: conditions for chargeable gains treatment

For the issuer to obtain chargeable gains treatment on the derivative, in the period in which its debtor relationship comes to an end, all the following conditions must be satisfied.

Conditions relating to the company

The issuer company must not:

  • have become party to the overall debtor loan relationship in the ordinary course of business as a bank or a securities house, or
  • be an Authorised Unit Trust, Investment Trust, Open Ended Investment Company or Venture Capital Trust (these concerns are exempt from tax on chargeable gains).

Conditions relating to the security

The company must not have originally become party to the overall debtor loan relationship in an accounting period beginning before 1 January 2005.

Conditions relating to the derivative element

  • The asset, or index of assets to whose value the redemption amount is linked must be shares, or (for periods ending on or before 30 December 2006) land. Unlike PARA45F ( CFM16755), there is no restriction of the underlying subject matter to particular types of share. (For periods ending on or before 30 December 2006 land was also a qualifying asset.)
  • The derivative contract must be either
  • an “exactly tracking” contract, or
  • for periods ending on or after 17 August 2005 but before 30 December 2006, one that would be “exactly tracking”, but for a condition that the redemption price of the security cannot fall below 10 per cent of the full issue price (called “almost exactly tracking” for the purposes of this guidance).

For periods beginning on or after 1 January 2005 and ending before 16 March 2005, capital gains treatment was also denied where the option was one to which any of FA02/SCH26/PARAS 6 to 8 applied. These paragraphs were repealed for accounting periods ending on or after 16 March 2005.

See CFM16790 for an explanation of “exactly tracking” and CFM16795 for examples.