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Tax treatment of a conversion of shares

Any alteration in the rights of a share, class of share or debenture typically falls within the share reorganisation rules (D6.101–D6.103) and therefore should be neutral for chargeable gains purposes.

However, this is subject to the rules on value shifting (see C1.335, C1.336).

Rights may be altered for a number of commercial reasons either independently or in conjunction with a more substantial transaction.

Common examples include:

1. Ìý

   •ÌýÌýÌýÌý converting preference shares into ordinary shares, loan stock (see below)

2. Ìý

   •ÌýÌýÌýÌý making changes to share rights prior to a listing (such as removing restrictions on transfer), and

3. Ìý

   •ÌýÌýÌýÌý splitting shares into different classes in order to effect a demerger (see D6.420)

Conversion to loan stock

As regards conversion into loan stock, the following commercial and taxation points should be borne in mind (by the shareholders and the company issuing the loan stock, as appropriate) prior to undertaking such a conversion.

Taxation considerations

Normally it will be preferable to obtain