Income Tax (Earnings and Pensions) Act 2003 section 446H

Adjustment of market value: charge on conversion

Section 446H counters arrangements that artificially depress the market value of securities received on conversion of employment-related convertible securities, ensuring the tax charge on conversion reflects the true value of the converted securities.

• This section applies when convertible employment-related securities are converted into new securities whose market value has been artificially depressed at the time of conversion.
• The market value is considered artificially low if it has been reduced by at least 10% as a result of actions carried out for non-genuine commercial purposes within the 7 years ending with the conversion event.
• Where the section applies, the market value of the converted securities used in calculating the taxable gain on conversion is increased to what it would have been without the artificial reduction.
• The adjustment specifically increases the figure known as CMVCS (the current market value of converted securities) used in the gain calculation under section 441(6), restoring it to its undepressed level.