Income Tax (Trading and Other Income) Act 2005

59 Convertible loans and loan stock etc.

(1) No deduction is allowed under section 58 in respect of a loan or loan stock if—

(a) it carries the right of conversion into, or to the acquisition of, shares or other securities, and

(b) the right is exercisable before the end of the period of 3 years from the date when the loan was obtained or the stock issued (“the 3 year period”).

(2) “Other securities” does not include a loan or loan stock—

(a) the interest on which is deductible in calculating the profits of the person’s trade, and

(b) which does not carry such a right as is mentioned in subsection (1).

(3) But the restriction imposed by subsection (1) does not apply if the right is not, or is not wholly, exercised before the end of the 3 year period.

(4) In such a case any incidental costs of obtaining finance incurred before the end of the 3 year period are treated as incurred immediately after the end of it.

(5) If the right is exercised within the 3 year period as to part of the loan or loan stock, only the following incidental costs of obtaining finance are treated as incurred.

(6) The costs are those corresponding to the proportion of the loan or loan stock in respect of which the right is not exercised within that period.