Accrued income scheme

Tax rules aimed at preventing income from being taxed as capital. The rules apply where certain interest-bearing securities are transferred with significant accrued income. The proportion of the sale price equivalent to the income that has accrued on the security since the last income payment date is charged to income tax (sections 616-677, Income Tax Act 2007). The person chargeable is generally the seller. The effect of the scheme is that if a buyer pays, say, £10,500 for £10,000 nominal, of which £300 represents the income that has accrued since the last income payment date, the accrued income scheme is designed to tax the £300 as income of the seller. The scheme generally gives a credit to the buyer so that when the buyer receives an income payment at the end of the income period, the £300 which the buyer paid as part of the purchase price for the securities and which was treated as income of the seller is deducted from the income for the buyer’s tax purposes. For further discussion about the accrued income scheme, see Practice note, Income tax: anti-avoidance and secondary liability: Accrued income scheme ( www.practicallaw.com/3-385-1246) .

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