SAIM4030 - Accrued Income Scheme: outline of the legislation
Scope of the legislation
The Accrued Income Scheme legislation is a free-standing income
tax charge on the transfer of interest-bearing securities, and is
not part of the charge on savings and investment income in Part 4
of ITTOIA05. It was formerly to be found at sections 710 to 728 of
ICTA88, and was rewritten in the Income Tax Act 2007, where it is
now to be found in Part 12 (ITA07/S615 to S681). For tax years
before 2005-06, tax on AIS amounts was charged under Case VI of
Schedule D.
Chapter 1 introduces the charge on ‘accrued income
profits’. Chapter 2 contains the body of the provisions,
which explain when and to whom the scheme applies, how to calculate
accrued income profits and losses and when they are taxed. Chapter
3 sets out how relief is obtained for accrued income losses. These
are set against the interest from the security on which the loss is
made, rather than being set against other accrued income profits.
The AIS applies to all interest-bearing securities except
those treated as ‘excluded securities’. In addition,
certain persons are ‘excluded transferors’ for the
purposes of the scheme. The effect of these exclusions is similar
to the priority of charging rules in ITTOIA05/S366 (
SAIM1070), in that accrued income
profits arising as part of a trade are taxed as trading income, and
the tax charge on certain other types of savings and investment
income, notably deposit rights and certificates of deposit (
SAIM2500) and deeply discounted
securities (
SAIM3000) takes priority over the
accrued income charge.
The basic rules
ITA07/S616 to ITA07/S637 contain the basic charge to tax on
accrued income profits.
Accrued income profits are normally computed by reference to
‘transfers’ of ‘securities’ which carry
‘interest’. There are four different types of transfer
(
SAIM4060). Interest accrues to a
‘settlement day’ which falls within an ‘interest
period’. ‘Interest’, ‘transfers’,
‘securities’, ‘settlement day’ are all
defined terms in the legislation.
Profits are treated as made on the last day of the interest
period, and taxed in the tax year in which the last day of the
interest period falls (ITA07/S628). If the ‘settlement
day’ falls after the last ‘interest period’, the
profits are treated as made in the tax year in which the settlement
day falls (ITA07/S630).
The person liable is the person treated as making the accrued
income profits, that is, the transferor or the transferee of
securities.
Exclusions
ITA07/S638 to ITA07/S647 exclude certain transferors and transferees from the rules. The most frequently applicable exclusion is for ‘small holdings’ of £5000 or less.
Special rules
ITA07/S648 to ITA07/S670 set out a number of special rules which
- treat certain types of transaction treated as transfers, and exclude certain transactions from the AIS rules;
- amend the calculations in certain circumstances.
