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HMRC internal manual

Savings and Investment Manual

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Interest: sale of interest rights: disposal of deposit rights: the legislation

Interest: sale of interest rights: disposal of deposit rights: the legislation

The charge to tax

ITTOIA/S551 charges profits or gains from the disposal of deposit rights. As deposit rights consist of the right to receive interest and the right to the return of the principal amount, subsection (2) makes clear that receiving the principal amount is a disposal of rights for the purposes of the charge to tax but receiving interest is not. Such interest is taxable under Chapter 2 of Part 4.

The income charged is the full amount of the profits or gains arising in the tax year - ITTOIA05/S553. The person liable is the person receiving or entitled to receive the profits or gains - ITTOIA05/S554. See SAIM2400 for an explanation of the difference between receiving and entitled to receive.

Meaning of ‘deposit rights’

ITTOIA05/S552 defines ‘deposit rights’. They include:

  • the right to receive the principal on an eligible debt security, where the uncertificated units of the eligible debt security correspond to a certificate of deposit;
  • the right to the principal on a certificate of deposit;
  • an uncertificated right to receive a principal amount as a result of a deposit;
  • other rights, not acquired by a transaction involving a certificate of deposit, a security, uncertificated eligible debt security units, to receive principal and/or interest from a bank or similar institution.

Certificate of deposit means a document relating to a deposit of money, which recognises the obligation to repay the principal with or without interest, and is transferable.

The terms ‘uncertificated’ and ‘eligible debt security’ take their meanings from Treasury regulations (SAIM2510).

‘Uncertificated right’ means a right in respect of which no certificate is issued, but the holder may call for one.

The definition of a security (other than an eligible debt security) is the same as that in TCGA92/S132.

Exemptions

There is no charge in respect of a right to receive an amount stated in a CD issued before 7 March 1973 (ITTOIA05/SCH2/PARA92). In practice CDs are issued for a maximum term of five years, and the exemption is unlikely to apply to any existing instruments.

There is no charge in respect of uncertificated rights issued on or before 16 July 1992 (ITTOIA05/SCH2/PARA93). Again, the exemption is now unlikely to have any practical application.

Losses

ITA07/S152 provides for loss relief for losses on miscellaneous transactions. These miscellaneous transactions are listed in the table at ITA07/S1016 and transactions in deposits are amongst them. ITA07/S154 treats interest from deposit rights as miscellaneous income for the purposes of relieving any loss from the disposal or exercise of the deposit rights.