Tax treatment of conversions of securities
Published by a LexisNexis Tax expert
Last updated on 16/10/2019

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Tax treatment of conversions of securities
  • Definition of security
  • Statutory definition
  • Case law definition
  • Definition of conversion
  • Tax consequences of conversion
  • Money received
  • Meaning of 'small'
  • Treatment of non-small amounts
  • Treatment of small amounts
  • More...

Tax treatment of conversions of securities

The conversion of a company's securities should be treated as a tax neutral reorganisation.

The conversion is treated as not involving any disposal of the existing securities or any acquisition of the securities held after the conversion. The security holder’s interest in the company before and after the conversion is deemed to be the same asset for the purposes of the taxation of chargeable gains.

A conversion of securities involves a single company but does not involve the issue of additional shares or securities in respect of an existing holding or the alteration of rights attaching to a class of shares. A conversion of securities applies to securities only—it does not generally apply to shares.

A conversion of securities leaves the overall ownership of the company unchanged.

This mirrors the position under a basic reorganisation, ensuring that companies are able to arrange and rearrange their capital base in a flexible manner without triggering tax charges.

At the same time, the tax base is protected by ensuring that any inherent gain in the securities at the time of the conversion is 'rolled over' into the new securities (or, where the new securities are qualifying corporate bonds (QCBs), 'held over') until the new securities are disposed of in the future.

For the meaning of QCBs, see Practice Note: Share for share exchanges and qualifying corporate

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