Convertible securities

Produced by Tolley in association with

Employment Tax

Guidance

Overview

Shares or securities may have certain rights to convert into other types of shares or securities on specific events or may be subject to certain conditions. Where the securities are also employment related securities (ERS), they may be considered to be ‘convertible securities’ under ITEPA 2003, ss 435–444 (Pt 7, Ch 3). See the Employment related securities overview note for the definition of ERS.

On conversion, the value of the shares or securities may increase so that the holder makes a notional gain or can sell the new securities for a real gain.

Where the rules on convertible securities apply, income tax and potentially NIC are charged on a gain (or notional gain) where certain chargeable events occur.

It is important to note that convertible securities might also be restricted securities (see the Restricted securities guidance note). If the securities also fall within the scope of the restricted securities rules, treating the securities as restricted securities and using a section 431 election may minimise the overall liability.

What are convertible

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Helen Wood

Founder, HLN WD TX , Employment Tax

Helen Wood is the founder of HLN WD TX, a share schemes and employee incentives advisory business.She qualified as a CA with ICAS in 2009 and has worked as a specialist reward and incentives advisor for 17 years, spending 13 of those at KPMG followed by 3 ½ years as an Associate Director at RSM. Helen has worked with businesses ranging from start-ups to fully listed companies, spanning owner-managed businesses, private equity portfolio companies, and AIM listed businesses.She advises on a wide range of employee share schemes and employment related securities matters including the design and implementation of effective management and employee incentives; tax valuation of employment related securities, buy and sell side transaction support, HMRC compliance, tax due diligence and employee ownership trust transactions.

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