Taxation of Chargeable Gains Act 1992 section 133

Premiums on conversion of securities

Section 133 deals with the capital gains tax treatment of cash premiums received by a person when their securities are converted into new holdings.

• When securities are converted and a cash premium is received in addition to the new holding, special rules determine whether the premium triggers a disposal for capital gains purposes.
• If the premium is small compared to the value of the converted securities (generally 5% or less of the value, or up to £3,000 if greater), it is not treated as a part disposal; instead the premium is deducted from the allowable expenditure of the new holding.
• Where the allowable expenditure is less than the premium (or is nil), the small premium treatment does not apply automatically, but the taxpayer can elect to reduce the premium by the amount of allowable expenditure, forfeiting that expenditure for all future disposals.
• Allowable expenditure for these purposes means the original cost of acquiring the converted securities and any incidental costs of acquisition attributable to them immediately before the conversion.