This section applies where, on a conversion of securities, a person receives, or becomes entitled to receive, any sum of money ("the premium") which is by way of consideration (in addition to his new holding) for the disposal of the converted securities.
If ... the premium is small, as compared with the value of the converted securities, ...—
receipt of the premium shall not be treated for the purposes of this Act as a disposal of part of the converted securities, and
the premium shall be deducted from any expenditure allowable under this Act as a deduction in computing a gain or loss on the disposal of the new holding by the person receiving or becoming entitled to receive the premium.
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Where the allowable expenditure is less than the premium (or is nil)—
subsection (2) above shall not apply, and
if the recipient so elects (and there is any allowable expenditure)—
the amount of the premium shall be reduced by the amount of the allowable expenditure, and
none of that expenditure shall be allowable as a deduction in computing a gain accruing on the occasion of the conversion, or on any subsequent occasion.
In subsection (4) above "allowable expenditure" means expenditure which immediately before the conversion was attributable to the converted securities under paragraphs (a) and (b) of section 38(1).