25 Mar 2018

Trigg case and qualifying corporate bonds

14 March 2018

Conversion clause


  • Partnership bought undervalued bonds, sold them 
    and claimed exemption from capital gains tax under TCGA 1992, s 115.
  • Effect of foreign currency conversion on qualifying corporate bonds.
  • Court of Appeal said the bonds did not contain provisions for their conversion as in TCGA 1992, s 117(1)(b).
  • Case concerned only euro-conversion clauses in bonds.

Nicholas Trigg was a member of Tonnant LLP, a partnership that bought some undervalued bonds and later sold them at a profit. He argued that these were qualifying corporate bonds (QCBs) and, therefore, exempt from capital gains tax (TCGA 1992, s 115). HMRC said the bonds were not QCBs (non-QCBs) so capital gains tax was due. The bonds concerned each had one of two schedules that were intended to activate if the UK joined the eurozone. Schedule A provided for conversion into any other currency that became the legal tender of the UK; schedule B specifically said the bonds would convert to euros if the UK joined the eurozone.

The relevant point is that a bond is a non-QCB if it can be converted into or redeemed in a currency other than sterling (s 117(1)(b)). However, this does not apply if the foreign currency conversion is at the exchange rate prevailing at the date of redemption so that there is no exchange risk during the currency of the bond (s 117(2)(b)).


First round to the taxpayer

On appeal, the First-tier Tribunal (TC4079)found for Mr Trigg. The judge said, if the UK joined the eurozone, there ...

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