Income Tax (Trading and Other Income) Act 2005 section 436

Deeply discounted securities issued in separate tranches: nominal value rule

Section 436 sets out a "nominal value rule" that can cause all securities issued under a prospectus to be treated as deeply discounted securities, once the aggregate nominal value of deeply discounted tranches exceeds that of the non-deeply discounted tranches.

• Where later tranches issued under the same prospectus include deeply discounted securities, and their combined nominal value exceeds that of all other securities issued under the prospectus, a tipping point is reached
• Once that tipping point is reached, all securities issued under the prospectus — past and future — are treated as deeply discounted securities for any subsequent disposal or acquisition, regardless of when they were actually issued or bought
• This retrospective treatment means that even securities that would not normally qualify as deeply discounted under the standard definition are swept in and treated as if they had always been deeply discounted
• However, where the holder of a security is not connected with the issuer, securities that only count as deeply discounted because they were issued to or acquired by a connected person are excluded from the nominal value calculation