Overview
Shares or securities may have certain rights to convert into other types of shares or securities on specific events or may be subject to certain conditions. Where the securities are also employment related securities (ERS), they may be considered to be ‘convertible securities’ under ITEPA 2003, ss 435–444 (Pt 7, Ch 3). See the Employment related securities overview note for the definition of ERS.
On conversion, the value of the shares or securities may increase so that the holder makes a notional gain or can sell the new securities for a real gain.
Where the rules on convertible securities apply, income tax and potentially NIC are charged on a gain (or notional gain) where certain chargeable events occur.
It is important to note that convertible securities might also be restricted securities (see the Restricted securities guidance note). If the securities also fall within the scope of the restricted securities rules, treating the securities as restricted securities and using a section 431 election may minimise the overall liability.
What are convertible
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