CFM6105a - Taxing loan relationships convertibles: trading stock

Conditions for S92 to apply: holder of the security

FA96/S92 (1)(f) states that the security must 'not be one, the disposal of which would fall to be treated as a disposal in the course of activities forming an integral part of a trade carried on by the company'.

In other words, any convertible securities, a profit on which falls to be treated as a trading receipt by, for example, banks or other financial traders, will not get chargeable gains treatment. The profits will be taxed as income under the loan relationship rules, the same as other securities held as trading stock. Note that a company does not have to be a financial trader for securities to be held as an 'integral part of the trade', though the circumstances are likely to be extremely rare.

Life assurance companies

This exception does not apply to a life assurance company holding the security in connection with its basic life assurance and general annuity business where the I minus E basis is applied to it - see LAM 4 and FA96/SCH11/PARA1 (1A).