Income Tax (Earnings and Pensions) Act 2003 section 442

Amount of consideration given for entitlement to convert

Section 442 explains how to work out whether any part of the price paid for convertible employment-related securities represents a premium for the right to convert them, and if so, how much that premium is.

• Consideration is treated as having been paid for the conversion right only if the actual acquisition cost (ACS) exceeds the non-convertible market value (NCMV) of the securities
• The amount treated as paid for the conversion right is the excess of ACS over NCMV
• ACS is the total consideration given to acquire the employment-related securities
• NCMV is the market value of the securities at the time of acquisition, calculated as if they had no conversion feature