CFM5917 - Taxing loan relationships: asset-linked securities: calculating the relevant percentage change

Relevant percentage change

The relevant percentage change is the full amount of any percentage change in

• the value of chargeable assets (shares or land), or
• in any index of the value of such assets

over the relevant period.

See the example at CFM5917a.

Floor

The terms of the debt can provide for a 'floor' to ensure that there is an enforceable debt at all times. If the issue price is £100,000 and the return is linked to the percentage change in the value of a particular share, the lender could lose virtually everything if the value of that share plummets. A floor of, say, 8% would entitle the lender/investor to at least a repayment of £8,000 and ensures that there is an enforceable debt at all times rather than a debt that is contingent on later events. The presence of a floor of no more than 10% will not prevent the security from falling within FA96/S93- see S93(9).

Relevant period

The relevant period is the period between the time of the original loan and its repayment. So the security must be valued at the issue date and the redemption date. The only exception, provided by S93(8)(b), is where there are difficulties in obtaining valuations for that particular day, for example a price may only be quoted weekly. The time difference between the issue and redemption dates and the valuation dates (at issue and redemption) must be the same. This difference is referred to as 'lagging'.