Taxation of Chargeable Gains Act 1992, section 132

Equation of converted securities and new holding

Part IV Shares, securities, options etc.

(1)Sections 127 to 131 shall apply with any necessary adaptations in relation to the conversion of securities as they apply in relation to a reorganisation (that is to say, a reorganisation or reduction of a company’s share capital).

(2)This section has effect subject to sections 133 and 134.

(3)For the purposes of this section and section 133—

(a) “conversion of securities” includes [F706 any of the following, whether effected by a transaction or occurring in consequence of the operation of the terms of any security or of any debenture which is not a security, that is to say F706] —

(i)a conversion of securities of a company into shares in the company, and

[F707 (ia)a conversion of a security which is not a qualifying corporate bond into a security of the same company which is such a bond, and

(ib)a conversion of a qualifying corporate bond into a security which is a security of the same company but is not such a bond, andF707]

(ii)a conversion at the option of the holder of the securities converted as an alternative to the redemption of those securities for cash, and

(iii)any exchange of securities effected in pursuance of any enactment (including an enactment passed after this Act) which provides for the compulsory acquisition of any shares or securities and the issue of securities or other securities instead,

(b) “security” includes any loan stock or similar security whether of the Government of the United Kingdom or of any other government, or of any public or local authority in the United Kingdom or elsewhere, or of any company, and whether secured or unsecured.

[F708 (4)In subsection (3)(a)(ia) above the reference to the conversion of a security of a company into a qualifying corporate bond includes a reference to—

(a)any such conversion of a debenture of that company that is deemed to be a security for the purposes of section 251 as produces a security of that company which is a qualifying corporate bond; and

(b)any such conversion of a security of that company, or of a debenture that is deemed to be a security for those purposes, as produces a debenture of that company which, when deemed to be a security for those purposes, is such a bond.

(5)In subsection (3)(a)(ib) above the reference to the conversion of a qualifying corporate bond into a security of the same company which is not such a bond includes a reference to any conversion of a qualifying corporate bond which produces a debenture which—

(a)is not a security; and

(b)when deemed to be a security for the purposes of section 251, is not such a bond.F708]

Definitions used in section 132 9

company

“company” includes any body corporate or unincorporated association but does not include a partnership, and shall be construed in accordance with section 99 ;

Defined in s.288(1) · see it in the full Act

(5) In this paragraph “company” and “group” shall be construed in accordance with section 170(2) to (9).

Defined in Sch.2 para.5(5) · see it in the full Act
shares

“shares” includes stock;

Defined in s.288(1) · see it in the full Act

(5) In this paragraph, except in paragraphs (a) to (c) of sub-paragraph (6), “shares” includes an interest in shares.

Defined in Sch.7AC para.10(5) · see it in the full Act

(b) “shares” includes securities,

Defined in Sch.7 para.4(2) · see it in the full Act
the shares

(5) In sub-paragraphs (3) and (4) and in the following provisions of this Schedule references to “the shares” are to the shares referred to in sub-paragraph (1)(a).

Defined in Sch.7ZB para.1(5) · see it in the full Act

(a) references to “the shares” shall be construed in accordance with sub-paragraph (1) above, and

Defined in Sch.5B para.13(12) · see it in the full Act
securities

(6) In sub-paragraph (4)(d) “securities” has the same meaning as in section 132.

Defined in Sch.4B para.12(6) · see it in the full Act

(2) In sub-paragraph (1)(a) “securities” has the same meaning as in section 132.

Defined in Sch.4B para.7(2) · see it in the full Act
qualifying

(a) is a “qualifying” corporate bond if it is issued after 13th March 1984; and

Defined in s.117(7) · see it in the full Act
corporate bond

(1) For the purposes of this section, a “corporate bond” is a security, as defined in section 132(3)(b)—

(a)the debt on which represents and has at all times represented a normal commercial loan; and

(b)which is expressed in sterling and in respect of which no provision is made for conversion into, or redemption in, a currency other than sterling,

Defined in s.117(1) · see it in the full Act
the option

(a) a share option (“the option”) has been granted to an individual—

(i) in accordance with the provisions of a Schedule 4 CSOP scheme, and

(ii) by reason of the individual’s office or employment as a director or employee of a company, and

(b) shares (“the relevant shares”) are acquired by the exercise of the option.

Defined in Sch.7D para.11(3) · see it in the full Act
enactment

(2) In section 257PE(2) of ITA 2007 (power to make consequential amendments etc when amending provision about claims for SI relief) “enactment” includes (in particular) sub-paragraph (1).

Defined in Sch.8B para.8(2) · see it in the full Act
local authority

“local authority” has the meaning given by section 999 of ITA 2007 ;

Defined in s.288(1) · see it in the full Act

Cases considering section 132 8

Hancock and another v Commissioners for Her Majesty’s Revenue and Customs

[2019] UKSC 24 · 22 May 2019Interprets

The provision extends reorganisation rollover treatment to conversions of securities, including conversions into or out of qualifying corporate bonds. It requires sections 127 to 131 to operate with necessary adaptations (see paras [4]-[5]; [23]). The direction to apply sections 127 to 131 with necessary adaptations allowed the single-asset fiction to be adapted when determining the number of conversions (see paras [4]; [23]). The definition demonstrated that Parliament intended each security converted into a qualifying corporate bond to be viewed as undergoing a separate conversion (see para [23]). The express inclusion of a conversion of a non-qualifying security into a qualifying corporate bond supported separate treatment of each security converted (see paras [4]; [23]). The express inclusion of a conversion of a qualifying corporate bond into a non-qualifying security formed part of the provision’s security-specific definition of conversion (see paras [4]; [23]).

Hancock & Anor v Revenue & Customs

[2017] EWCA Civ 198 · 25 May 2017Defines

Section 132 applies the reorganisation provisions to conversions of securities with necessary adaptations. Those adaptations required separate treatment of QCB and non-QCB inputs so that rollover continued to defer, rather than remove, a latent gain. (see [60]-[66]; [75]; [82]-[87]) The non-exhaustive statutory examples of conversion were treated as identifying unmixed conversions. Their failure to identify conversions with fiscally mixed inputs supported the separate treatment of each security. (see [62]; [65]-[66]; [75]) The express conversion of a non-QCB into a QCB was treated as a distinct unmixed conversion. It supported applying section 116 separately to the 08/00 Loan Notes. (see [21]; [35]; [65]-[66]) The express conversion of a QCB into a non-QCB was treated as another unmixed conversion. It illustrated the distinct fiscal treatment required where QCB status changes. (see [21]; [35]; [65]-[66]) The definition of security, including loan stock or similar company securities, supplied the basis for treating the loan notes as securities within the conversion regime. (see [17]; [21])

DMWSHNZ Ltd v HM Revenue and Customs

[2015] EWCA Civ 1036 · 20 October 2015Defines

Confirms that the debt under the loan notes was a debt on a security, relevant both to its treatment under section 251 and to the distinction between the security and the underlying debt. (see paras [41], [47], [53]-[54]) Applies the statutory definition of security to distinguish the loan notes from the underlying debt. That distinction did not establish an acquisition by the debtor on repayment. (see paras [47]-[48])

What each judgment says about section 132 is in the case-law panel in the full Act.

Amendments and notes

4 notes from legislation.gov.uk

Amendments

  1. F706Words in s. 132(3)(a) inserted (with effect in accordance with s. 88(6) of the amending Act) by Finance Act 1997 (c. 16), s. 88(2)(a)
  2. F707S. 132(3)(ia)(ib) inserted (with effect in accordance with s. 88(6) of the amending Act) by Finance Act 1997 (c. 16), s. 88(2)(b)
  3. F708S. 132(4)(5) inserted (with effect in accordance with s. 88(6) of the amending Act) by Finance Act 1997 (c. 16), s. 88(3)

Modifications

  1. C225S. 132 applied (retrospective to 31.12.1995) by Finance Act 1996 (c. 8), s. 203(10)