CG54504 - Securities: Accrued Income Scheme: transfer with accrued interest

If the securities are transferred with accrued interest or `cum div’ the transferee will receive the next interest payment. ITA07/S632 treats the transferor as having received a sum equal to the accrued interest. The transferee will have paid the transferor for the accrued interest either in the price of the security or as a separately characterised amount. ITA07/S632 gives the transferee relief for this sum. See SAIM4140+ for guidance on how the Accrued Income Scheme treats these deemed sums and reliefs.

For Capital Gains Tax purposes the following adjustments are required.

• Transferor - the disposal proceeds are reduced by the deemed sum
• Transferee - the acquisition cost is reduced by the amount of the relief.

Example

• 1 January 2017 Mr Allen buys £100,000 UK Computer PLC 10 per cent convertible loan stock for £108,000. Interest payments are made on 1 January and 1 July.
• 13 March 2018 Mr Allen sells the loan stock at a `clean price’, see IM4235, of £106,000. He also receives a payment of £1,972 representing 72 days accrued interest. Total proceeds £107,972.
• The Accrued Income Scheme treats Mr Allen as having received a sum of £1,972.

Capital Gains Tax computation

	£
Disposal proceeds	107,972
less Accrued Income	1,972
	106,000
less Cost	108,000
Loss	(2,000)

The purchaser will have paid a total of £107,972 for the loan stock. They will have received £1,972 Accrued Income Scheme relief. Therefore, their acquisition cost for Capital Gains Tax purposes is reduced to £106,000.