Rollover relief on conversion of corporate bonds

The taxpayers were a married couple who held all the share capital in a limited company BL which they sold and received loan notes as consideration. These were non-qualifying corporate bonds (QCBs) and subject to capital gains tax. They received additional non-QCBs which were later converted into qualifying bonds and not chargeable to capital gains tax.

The couple exchanged both sets of loan notes for secured discounted loan notes that were QCBs. HMRC charged the gains arising on the exchange to capital gains tax. 

The taxpayer claimed that the test in TCGA 1992 s 116(1)(b) was not met because the original holding included a QCB. The provision did not apply to the conversion so the chargeable gain that would otherwise have arisen on the disposal of the non-QCBs was not taxable.

The First-tier Tribunal agreed that the disposals of both sets of bonds should be treated as a single one...