CG54506 - Securities: Accrued Income Scheme: transfer without accrued interest

If the securities are transferred without accrued interest or `ex div’ the transferor will retain the right to receive the next interest payment. The transferor will have to compensate the transferee for the interest which arises after the date of sale. The Accrued Income Scheme calls this the rebate amount. ITA07/S633 gives the transferor relief for the rebate amount, see SAIM4150+. The transferee is treated as though they received a sum equal to the rebate amount.

For Capital Gains Tax purposes the following adjustments are required.

· Transferor - the disposal proceeds are increased by the value of the rebate amount

· Transferee - the acquisition cost is increased by the value of the rebate amount.

Example

· 1 January 2017 Mr Bates buys £100,000 UK Computer PLC 10 per cent convertible loan stock for £108,000. Interest is payable on 1 January and 1 July.

· 22 June 2018 Mr Bates sells the loan stock at a `clean price’, see IM4235, of £106,000.

· Mr Bates has to compensate the purchaser for the loss of nine days’ interest, £247.

· The Accrued Income Scheme gives Mr Bates relief for a rebate amount of £247.

Capital Gains Tax computation

	£
Disposal proceeds	105,753
plus Rebate Amount	247
	106,000
less Cost	108,000
Loss	(2,000)

The purchaser will have made a net payment of £105,753. The rebate amount of £247 will be taxed under the Accrued Income Scheme. For Capital Gains Tax purposes the acquisition cost becomes £106,000.