ERSM40300 - Convertible Securities

Old regime: charge on conversion 17 March 1998 to 31 August 2003

Where shares acquired on or after 17 March 1998 can be converted to another class of shares, the legislation enacted in Finance Act 1998, and found at ITEPA03/S438 as originally enacted (old ICTA88/S140D), imposes a charge to income tax at the time of conversion if before 1 September 2003. The charge is on the difference between

• the value of the new shares after conversion and
• the amount paid for the old shares and any amounts charged to income tax in respect of those shares.

ITEPA03/S438 does not disturb the normal employment income charge on the original acquisition of convertible shares.

For the charge under ITEPA03/S438 to apply:

• The shares must have been obtained by reason of the office or employment.
• The shareholder must be an employee or director resident and ordinarily resident in UK (old Case I of Schedule E) for that employment.
• Directors and employees include people who are or have been directors or employees.
• The charge on the share conversion is specific employment income within ITEPA03/S7 (4) and not dependent on the rules in Chapters 4 and 5 of Part 2 ITEPA 2003.

There is an important exception to this charge which is detailed at ERSM40310.