Income Tax (Trading and Other Income) Act 2005 section 59

Convertible loans and loan stock etc.

Section 59 restricts the deduction of incidental finance costs under section 58 where the loan or loan stock carries a right to convert into shares or other securities within three years.

• No deduction is allowed for incidental finance costs on a loan or loan stock that carries a right of conversion into shares or other securities, where that right is exercisable within three years of the loan being obtained or the stock being issued.
• The restriction does not apply if the conversion right is not exercised, or is not wholly exercised, before the end of the three-year period — in which case any costs incurred during the three-year period are treated as incurred immediately after it ends.
• Where the conversion right is exercised during the three-year period in respect of only part of the loan or loan stock, only the costs proportionate to the unconverted part qualify for deduction.
• The term "other securities" excludes any loan or loan stock whose interest is deductible in calculating trade profits and which does not itself carry a conversion right.