SAIM2410 - Interest: taxation of interest: person chargeable: examples

Who is taxable: examples

Example 1

Harriet holds a portfolio of quoted company bonds through a nominee. Although the nominee’s name appears on the companies’ registers of bond-holders, Harriet is the beneficial owner of the bonds and the person entitled to the interest arising from them. Harriet is therefore chargeable to tax on the interest.

Example 2

Mehta and her former husband Ian, receive the decree absolute on 29 December 2016. On 5 December 2016, a Court Order is made ordering Mehta to transfer certain assets to Ian. These include a building society account in Ian’s sole name. On 31 December, interest of £2,400 is credited to the building society account. On 2 January 2017, Mehta writes to the building society asking them to change the account from her name to Ian’s, and the building society acts on the request a week later.

Beneficial ownership of the account is transferred when the Court Order is made on 5 December 2016, even though the name on the account is not changed until later. (See the guidance at CG22423 on when assets are transferred on divorce or dissolution of a civil partnership - although this applies for capital gains tax purposes, HMRC would take a similar view where entitlement to interest is concerned.)

Ian is therefore the person who is entitled to, and taxable on, the interest that is paid on 31 December 2016. There is no question of apportioning the interest for her period of ownership of the account - see SAIM2420.