Corporation Tax Act 2009 section 129

Conversion etc. of securities held as circulating capital

Section 129 provides relief when securities held as circulating capital by a banking, insurance, or securities-dealing company are converted or exchanged, so that no taxable disposal is triggered merely because of the conversion or exchange.

• When securities held as trading stock by a bank, insurer, or securities dealer are converted or exchanged under capital gains tax roll-over provisions, the transaction is not treated as a disposal and the new holding inherits the identity of the original holding.
• The section does not apply where the securities are already accounted for at fair value, because those are dealt with separately under section 128.
• If the company receives additional consideration (such as cash) alongside the new holding, only a proportionate part of the original holding benefits from the relief, calculated using the formula NH/(NH + C), where NH is the market value of the new holding and C is the market value (or cash amount) of the additional consideration.
• For the purposes of determining whether the anti-avoidance rule in section 137(1) of TCGA 1992 blocks the relief, the test is extended to cover schemes designed to avoid income tax (not just capital gains tax or corporation tax), for example where a director or participator would benefit.