CFM6151a - Taxing loan relationships: convertibles: example of disposal of a security

Disposals and acquisitions: example

Example

AX Ltd holds securities with a face value of £100,000 issued by BH Ltd on 1 July 2002, redeemable or exchangeable on 30 June 2005. AX Ltd and BH Ltd are not connected. The securities carry the right to be exchanged for shares in CV Ltd at the rate of £1 of shares for every £2 of debt. The securities carry interest at 2% per annum, payable annually on 30 June.

On 31 December 2004, AX Ltd sells the securities to DY Ltd for £125,000, reflecting

• the increasing value of the shares in CV Ltd
• the right to receive interest for the year ended 30 June 2005.

Loan relationships

AX Ltd will bring in the £1,000 interest accrued between 1 July and 31 December 2004.

Chargeable gains

The interest accruing from 1 July to 31 December 2004 is excluded from the disposal consideration. AX Ltd's chargeable gain on the disposal will be based on

• acquisition cost £100,000
• disposal value £124,000.