Example of the tax treatment of a standard convertible security by the issuer applying to periods of account beginning on or after 1 January 2005

On 1 January 2007 X Ltd issues a 3-year security paying 4 per cent interest. The terms are that it will redeem for cash at par £1million or, at the holder's option, convert into 100,000 of X Ltd's ordinary £10 shares. X Ltd's issue costs are £20,000.

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