Finance Act 1977

46 Conversion etc. of securities held as circulating capital

(1) Subsections (3) and (4) below shall have effect where a transaction to which this section applies occurs in relation to any securities (" the original holding ")—

(a) to which a person carrying on a banking business, an insurance business or a business consisting wholly or partly in dealing in securities is beneficially entitled; and

(b) which are such that a profit on their sale would form part of the trading profits of that business.

(2) This section applies to any transaction which, if the securities were not such as is mentioned in subsection (1)(b) above—

(a) would result in the original holding being equated with a new holding by virtue of paragraph 4, 5, 6 or 7 of Schedule 7 to the [1965 c. 25.] Finance Act 1965 (capital gains tax roll-over relief in cases of conversions etc.); or

(b) would be treated by virtue of section 53 of the [1976 c. 40.] Finance Act 1976 (compensation stock) as an exchange for a new holding which does not involve a disposal of the original holding,

but does not apply to any transaction in relation to which section 326 (exchange of securities in connection with conversion operations, nationalisation etc.) of the Taxes Act applies or would apply if the person concerned had not given a notice under that section.

(3) Subject to subsection (4) below, in making any computation in accordance with the provisions of the Taxes Act applicable to Case I of Schedule D of the profits or losses of the business—

(a) the transaction shall be treated as not involving any disposal of the original holding ; and

(b) the new holding shall be treated as the same asset as the original holding.

(4) Where under the transaction the person concerned receives or becomes entitled to receive any consideration in addition to the new holding, subsection (3) above shall have effect as if references to the original holding were references to the proportion of it which the market value of the new holding at the time of the transaction bears to the aggregate of that value and the market value at that time (or, if it is cash, the amount) of the consideration.

(5) Subsections (3) and (4) above shall have effect with the necessary modifications in relation to any computation made for the purposes of section 305(2) of the Taxes Act (restriction on relief for expenses of management) in a case where securities held by the company concerned are equated with a new holding by virtue of any of the provisions mentioned in paragraph (a) of subsection (2) above or are treated as not disposed of by virtue of the provision mentioned in paragraph (b) of that subsection.

(6) In this section " securities " includes shares, any security within the meaning of paragraph 5 of Schedule 7 to the said Act of 1965 and any rights, interests or options which by virtue of section 45(8) of that Act, paragraph 15 of Schedule 12 to the [1968 c. 44.] Finance Act 1968 or section 58(4) of the [1971 c. 68.] Finance Act 1971 are treated as shares for the purposes of the provisions mentioned in subsection (2) above.

(7) In determining for the purposes of subsection (2)(a) above whether a transaction would result in the original holding being equated with a new holding by virtue of paragraph 6 or 7 of Schedule 7 to the said Act of 1965 the reference in section 40(2) above to capital gains tax shall be construed as a reference to income tax.

(8) This section applies where the securities comprised in the new holding are issued after 19th April 1977.