There has been a change to the tax treatment of convertible notes issued by a company after 14 May 2002 if the notes are traditional securities. Under the change:
- any gains you make when these notes are converted or exchanged for ordinary shares in a company will not be ordinary income at the time of conversion or exchange, and any losses you make will not be deductible
- instead, any gains or losses you make on the later sale or disposal of the shares (incorporating any gain or loss that would have been made on the conversion or exchange of the notes) will be
- subject to CGT if you are an ordinary investor, or
- ordinary income (or deductible, in the case of a loss) if you are in the business of trading in shares and other securities.
For more information, get the publication You and your shares.