Part 2

Trading income
Chapter 5

Trade profits: rules allowing deductions

Incidental costs of obtaining finance

Convertible loans and loan stock etc.
59
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.