Accrued Income Scheme: remittance basis
Accrued income profits arising on transfers of a ‘foreign security’ are treated as relevant foreign income for individuals chargeable on the remittance basis (see SAIM1140). Securities are ‘foreign’ where income (in practice, interest) from them would be relevant foreign income. This will include, for example, a security issued in registered form by a non-UK company, which maintains the register of note-holders outside the UK.
Where an individual receives consideration, in money or money’s worth, for selling a foreign security, remittance of some or all of that consideration to the UK is treated as a remittance of accrued income profits.
For examples of the application for the remittance basis rules to the AIS see SAIM4390.
Consideration on transfer not equal to the market value of the securities
In some cases, a remittance basis taxpayer will make an accrued income profit on a transfer of securities, but will not receive consideration equal to the market value of the securities. This may happen when the securities are transferred ‘ex-div’ and the taxpayer is the transferee. It may also happen where the taxpayer is the transferor, and makes a gift of the securities, or where the AIS rules treat an event as a transfer (for example, an appropriation of securities to trading stock). In such cases ITA07/S670A(3) provides that the securities themselves are treated as deriving from the accrued income profits. This means that a charge will arise on the taxpayer when they, or some other ‘relevant person’, either bring the securities to the UK (if they are held in bearer form) or remit money or property deriving from the securities. The Residence, Domicile and Remittances Manual (RDRM) has more information about the meaning of ‘remittance’ and the operation of the remittance basis.
Remittance basis and accrued income losses
Remittance basis taxpayers are able to obtain relief for accrued income losses. Losses arising on transfers of securities of a particular kind are set against interest received on securities of the same kind at the end of the relevant interest period, and will therefore reduce the amount of an individual’s interest on those securities. There is an example of the interaction of the accrued income loss rules and the remittance basis rules at SAIM4390.
Transfers with a settlement date before 6 April 2008
For transfers with a settlement date before 6 April 2008 ITA07/S644 treated an individual chargeable on the remittance basis as an excluded transferor or transferee, if the transfer was of a ‘foreign security’.