CFM6111 - Taxing loan relationships: convertibles : connection commencing and ceasing

Companies become connected

If the companies were not connected when the security was issued, but become connected at a later time,

• FA96/S92 no longer applies to the security, and
• there is a deemed disposal and re-acquisition for chargeable gains purposes.

From this time onwards, credits and debits are brought into account according to the loan relationship rules.

There is more detail of the tax effect of companies becoming connected and the security therefore falling out of S92 at CFM6160.

Companies ceasing to be connected

The legislation does not have the opposite effect. If the parties are

• connected on issue, so that S92 does not apply, and then
• cease to be connected,

the holder cannot then have the S92 treatment.