5.3.1 Disposals giving rise to taxable employment income

As set out at 4.3 above, the disposal of convertible securities can give rise to a tax charge where the consideration received for the disposal (referred to as ‘DC’ in the legislation) is greater than the value that would be attributed to the securities if they did not carry the conversion right. (As set out at 4.3.5 above, this value is referred to as the CMVERS in ITEPA 2003.) The difference between these two values is treated as taxable employment income.

Example 1: disposal of convertible securities

Caroline is given 1,000 convertible preference shares of £1 each in Boats Limited, which have the following rights:

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