CFM6124 - Taxing loan relationships: convertibles: security wholly replaced by shares

All debt converted to shares

FA96/S92 (1)(ee) states that the terms for conversion must ensure that the security is wholly replaced by shares. However, where this is not possible – because a whole number of shares cannot be transferred – the issuer can make a cash adjustment for that fraction of a share.

This provision ensures that the return comes in the form of shares and not cash.

Any cash adjustment cannot exceed 5% of the value of the shares on exercise (S92(1D)).

There is an example at CFM6124a.