The Accrued Income Scheme determines how we treat any interest that relates to the period spanning the date of sale for tax purposes. You may be affected by the scheme if you transfer securities or have securities transferred to you.
This guide explains the basic rules of the scheme and will help you make the right entries on your tax return. It describes
When interest-bearing securities are transferred from one person to another the sale agreement will specify who is entitled to the next interest payment. In cum-divided sales the buyer will get the next interest payment, and the transfer price will have been increased to reflect the value of that payment. In ex-dividend sales the next interest payment will be paid to the seller and the transfer price will have been reduced to take that into account.
The scheme applies to interest-bearing marketable bonds and loan stock, for example
It does not apply to ordinary or preference shares in a company, units in a unit trust, National Savings Certificates or bank deposits. It does not apply to certain securities called 'relevant discounted securities' where the investor's reward includes a discount or premium. You can find more information on relevant discounted securities in the guide enclosed with your tax return.
The scheme does not apply to companies chargeable to Corporation Tax for securities transferred after 31 March 1996.
If you are not a company you may be affected if you transfer securities or have securities transferred to you. Your transfers will be affected by the scheme unless your total holding of securities (not just the ones transferred) is small enough to be under the limit.
Your transfer is under the limit if the nominal value of your total holdings of securities did not exceed £5,000 at any time in
On 31 March 2003 you sell £4,000 nominal value of 8.5% Treasury Stock 2007, which pays interest on 16 January and 16 July. On 10 April 2003 you use the proceeds to buy £6,800 nominal of 5% Treasury Stock 2008. You hold no other securities at any time.
The 31 March 2003 transfer falls in the tax year to 5 April 2003, when the nominal value of your total holding of securities never exceeded £5,000. But the next interest payment on the sold securities is 16 July 2003, which is in the tax year to 5 April 2004. Because you bought £6,800 nominal of 5% Treasury Stock in that tax year, on 10 April 2003, you exceeded the limit and the Accrued Income Scheme applies to the 31 March 2003 sale.
You will need to ask your HM Revenue & Customs office for advice if
The Accrued Income Scheme determines how we treat interest for the period that spans the date of sale for tax purposes. The scheme allocates the interest between buyer and seller. We tax
If you buy or sell securities through a bank or stockbroker, you will get a contract note that shows any accrued interest. Ask your HM Revenue & Customs office if
The way we treat the accrued interest for income tax depends on whether you are a seller or a buyer.
If there is a transfer of securities that the Accrued Income Scheme applies to, you must
This is the related interest payment. It determines the tax year that the accrued income is taken into account for.
This example shows the calculations for the transactions in Example 1.
On 31 March 2003 you sell £4,000 nominal value of 8.5% Treasury Stock 2007, which pays interest on 16 January and 16 July. The contract note shows that £71 accrued interest has been added to the sale price. So, we will tax you on this amount.
The next payment of interest on the sold securities is on 16 July 2003 (the tax year 6 April 2003 to 5 April 2004). We will tax you on the £71 in that tax year. When you complete your tax return for the year ended 5 April 2004 you must include the £71 to any other interest you received during the year.
On 10 April 2003 you buy £6,800 nominal value of 5% Treasury Stock 2008 which pays interest on 7 March and 7 September. The contract note shows that £27 accrued interest has been included in the total price you paid. So, you will get tax relief on this amount.
The next interest payment is on 7 September 2003 (the tax year 6 April 2003
to
5 April 2004). There is £170 interest paid to you on 7 September,
but we will only tax you on £170 - £27 = £143. When you
complete your tax return for the year ended 5 April 2004 you must reduce
the £170 interest receipt by the £27 relief for accrued income.
If you make two or more transactions in the same kind of security with the same related interest payment, you must combine the results of those transactions to give
This is the only time that the results of transactions are added together.
These notes do not cover every point, but any HM Revenue & Customs Enquiry Centre will be pleased to help you. Addresses are in your local phone book under 'Inland Revenue'.
You can get advice from a professional adviser or organisation. You can also ask Citizens Advice Bureau. You can find them in The Phone Book or you can visit adviceguide.
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These notes are for guidance only and reflect the tax position at the time of writing. They do not affect your right of appeal.
Issued by HM Revenue & Customs Better Guidance Programme.
August 2005
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