Finance (No. 2) Act 2005

Convertible securities U.K.

8 U.K. Chapter 3 of Part 7 (convertible securities) is amended as follows.

9 (1) In section 436(a) (meaning of “convertible securities”), for “immediate or conditional entitlement” substitute “ entitlement (whether immediate or deferred and whether conditional or unconditional) ”. U.K.

(2) Section 437 (adjustment of acquisition charge) is renumbered as subsection (1) of that section.

(3) After that subsection insert—

“(2) Subsection (1) does not apply if the main purpose (or one of the main purposes) of the arrangements under which the right or opportunity to acquire the employment-related securities is made available is the avoidance of tax or national insurance contributions unless the market value of the employment-related securities determined under subsection (1) would be greater than that determined under subsection (3).

(3) Where subsection (1) does not apply by virtue of subsection (2) the market value of the employment-related securities is to be determined—

(a) where the securities which are (or an interest in which is) the employment-related securities fall within paragraph (a) of section 436 and the entitlement to convert is not both immediate and unconditional, as if it were,

(b) where they fall within paragraph (b) of that section, as if the circumstances are such that an entitlement to convert arises immediately, and

(c) where they fall within paragraph (c) of that section, as if provision were made for their immediate conversion;

and in each case is to be determined as if they were immediately and fully convertible.

(4) In subsection (3) “immediately and fully convertible” means convertible immediately after the acquisition of the employment-related securities so as to obtain the maximum gain that would be possible on a conversion at that time (assuming, where the securities into which the securities may be converted were not in existence at that time and it is appropriate to do so, that they were) without giving any consideration for the conversion or incurring any expenses in connection with it.”

(4) This paragraph has effect in relation to acquisitions on or after 2nd December 2004.

10 (1) In section 440 (amount of charge under section 438), after subsection (3) insert— U.K.

“(3A) If (because of subsection (2) of section 437) subsection (1) of that section did not apply in relation to the employment-related securities, the taxable amount is to be reduced by the amount by which—

(a) the market value of the employment-related securities for the purposes specified in that subsection, exceeded

(b) what it would have been had that subsection applied,

(less the aggregate of any amount by which the taxable amount on any previous chargeable event relating to the employment-related securities has been reduced under this subsection).”

(2) This paragraph has effect on and after 2nd December 2004.

11 (1) In section 443 (exception from charge under section 438 for certain company shares), for subsection (1A) substitute— U.K.

“(1A) This subsection is satisfied unless something which affects the employment-related securities has been done (at or before the time when section 438 would apply) as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.”

(2) This paragraph has effect where something such as is mentioned in section 443(1A) of ITEPA 2003 has been done on or after 2nd December 2004.