Chargeable gains on shares that had been ‘frozen’ into loan notes did not escape capital gains tax when the loan notes were converted into other loan notes, which were qualifying corporate bonds.
The appellants held between them 100% of the shares in a company (B). In August 2000, B was sold to another company (L). The initial consideration was loan notes issued by L (the ‘08/00 loan notes’) which were non-qualifying corporate bonds (non-QCBs), with provision for additional consideration depending on the subsequent performance of the business. Additional consideration was subsequently paid in March 2001 (‘the 03/01 loan notes’) which were also non-QCBs.
In October 2002, the 03/01 loan notes were converted (into ‘revised 03/01 loan notes’) which were QCBs. The effect of the conversion of the 03/01 loan notes into the revised 03/01 loan notes was to freeze the gain on those
