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HMRC internal manual

Inheritance Tax Manual

Liabilities: investigating liabilities: income tax on the disposal of deep discount securities

A deep discount security is any redeemable security (other than a share) that is issued by a company at a discount on the amount payable on redemption where the discount:

  • is equal to more than 0.5% a year or
  • more than 15% overall.

When the security is transferred or redeemed the profit realised from the discount is taxed as income of the investor ITTOIA 2005/CHAPTER8 PART4.

Death is treated as a transfer and you may allow a deduction for any liability to income tax under IHTA84/S174 (1)(b), as amended by ITTOIA 2005/S882(2) and SCH1/PARAS396(a) and (b) . For deaths before 6 April 2005, IHTA84/S174 (1) (b) worked in the same way for income tax liabilities which arose under FA96/Sch14/PARA2.