Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses
325

625
Transfers with unrealised interest
(1)
For the purposes of this Chapter securities are transferred with unrealised
interest if they are transferred with the right to receive interest payable on an
interest payment day falling before the settlement day.
(2)
Such interest is referred to in this Chapter as “unrealised interest”.
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626
Transfers of variable rate securities
(1)
Sections 623 and 624 do not apply to transfers of variable rate securities.
(2)
Such transfers are not treated as transfers with accrued interest or transfers
without accrued interest.
627
Meaning of “variable rate securities”
10
(1)
For the purposes of this Chapter securities are “variable rate securities” unless
their terms of issue provide that throughout the period from issue to
redemption (whenever redemption might occur) they are to carry interest at a
rate which falls into one, and one only, of the categories specified in subsection
(2).
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(2)
The categories are—
(a)
a fixed rate which is the same throughout the period,
(b)
a rate which bears the same fixed relationship to a standard published
base rate throughout the period, and
(c)
a rate which bears the same fixed relationship to a published index of
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prices throughout the period.
(3)
In subsection (2) “published index of prices” means the retail prices index or
any similar general index of prices which is published by the government of
any territory outside the United Kingdom or by an agent of such a government.
(4)
In determining whether new securities (within the meaning of section 649)
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(new securities issued with extra return) are variable rate securities, the interest
payable on them on the first interest payment day after their issue is treated as
payable in respect of the period beginning with the relevant period and ending
with that day.
(5)
In subsection (4) “the relevant period” has the meaning given by section 649(8).
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Calculating accrued income profits and losses
628
Making accrued income profits and losses: general rule
(1)
This section sets out the general rule for determining whether a person is
treated as making accrued income profits or accrued income losses where
securities are transferred by or to the person.
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(2)
This section does not apply in a case where section 630 applies.
(3)
A separate calculation is to be made for each kind of security that is transferred
by or to the person and for each interest period of each such kind of security.
(4)
Each such calculation is to find—

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses
326

(a)
the total amount (“A”) of the payments treated under this Chapter as
made to the person in the interest period in question in respect of
transfers of securities of the particular kind, and
(b)
the total amount (“B”) of the payments treated under this Chapter as
made by the person in that period in respect of such transfers.
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(5)
A person is treated as making accrued income profits in an interest period as a
result of transfers of securities of a particular kind if A exceeds B.
(6)
A person is treated as making accrued income losses in an interest period as a
result of transfers of securities of a particular kind if B exceeds A.
(7)
For the payments that are treated as made on transfers of different kinds, see—
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section 632 (payment on transfer with accrued interest),
section 633 (payment on transfer without accrued interest),
section 634 (payment on transfer with unrealised interest),
section 635 (payment on transfer of variable rate securities), and
section 637(2) (accrued income losses treated as payment on transfer in
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next interest period).
(8)
See also—
section 638(2) (no account to be taken of any payment treated as made by
or to excluded transferor or transferee), and
Chapter 3 (exemptions relating to interest on securities).
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629
Calculating accrued income profits and losses where section 628 applies
(1)
If section 628(5) applies, the amount of the accrued income profits treated as
made is equal to the excess mentioned in section 628(5).
(2)
If section 628(6) applies, the amount of the accrued income losses treated as
made is equal to the excess mentioned in section 628(6).
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630
Making accrued income profits: settlement day outside interest period
(1)
This section applies if—
(a)
there is a transfer of securities with unrealised interest or a transfer of
variable rate securities, and
(b)
the settlement day for the transfer falls after the end of the only or last
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interest period of the securities.
(2)
The transferor is treated as making accrued income profits.
(3)
See also—
section 638(3) (no account to be taken of transfer if transferor is excluded
transferor), and
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section 681 (exemption for unrealised interest received by transferee after
transfer).
631
Amount of accrued income profits where section 630 applies
(1)
In the case of a transfer of securities with unrealised interest to which section
630 applies, the amount of the accrued income profits treated as made is equal
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to the unrealised interest.

Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses
327

(2)
Subsection (1) is subject to section 660 (transfers with unrealised interest:
interest in default).
(3)
In the case of a transfer of variable rate securities to which section 630 applies,
the amount of the accrued income profits treated as made is such amount as is
just and reasonable.
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The payments treated as made on transfers
632
Payment on transfer with accrued interest
(1)
In the case of a transfer of securities with accrued interest, for the purposes of
this Chapter a payment is treated as made by the transferee to the transferor in
the interest period in which the settlement day falls.
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(2)
The amount of that payment depends on whether the transfer is under an
arrangement by which the transferee accounts to the transferor separately—
(a)
for the consideration for the securities, and
(b)
for gross interest accruing to the settlement day.
(3)
If the transfer is under such an arrangement, the amount of the payment is the
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amount of gross interest which the transferee accounts for.
(4)
If—
(a)
the transfer is not under such an arrangement, and
(b)
the settlement day is itself an interest payment day for the securities,

the amount of the payment is the amount of interest payable on the securities
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on that day.
(5)
If—
(a)
the transfer is not under such an arrangement, and
(b)
the settlement day is not an interest payment day for the securities,

the amount of the payment is an amount equal to—
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where—
I is the interest payable on the securities on the first interest payment day
after the settlement day (“the payment day”),
A is the number of days in the period beginning with the first day on
which that interest accrues and ending with the settlement day, and
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B is the number of days in the period beginning with the first day on
which that interest accrues and ending with the payment day.
(6)
For the purposes of subsection (5), the first day on which that interest accrues
is taken to be—
(a)
the day after the last interest payment day before the settlement day, or
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(b)
if there was no interest payment day before the settlement day, the first
day of the first interest period of the securities.
(7)
In a case where no one is treated as the transferor (see sections 648(4) and
649(5)), this section has effect as if—
(a)
in subsection (1) the words “to the transferor” were omitted, and
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Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses
328

(b)
subsections (2), (3), (4)(a) and (5)(a) were omitted.
(8)
In a case where no one is treated as the transferee (see sections 621(2) and (3)
and 648(2)), this section has effect as if—
(a)
in subsection (1) the words “by the transferee” were omitted, and
(b)
subsections (2), (3), (4)(a) and (5)(a) were omitted.
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(9)
Subsections (2) to (5) are subject to section 662 (new securities issued with extra
return: special rules about payments).
(10)
Subsections (4) and (5) are subject to section 659 (transfers with or without
accrued interest: interest in default).
633
Payment on transfer without accrued interest
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(1)
In the case of a transfer of securities without accrued interest, for the purposes
of this Chapter a payment is treated as made by the transferor to the transferee
in the interest period in which the settlement day falls.
(2)
The amount of that payment depends on whether the transfer is under an
arrangement by which the transferor accounts to the transferee for gross
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interest accruing from the settlement day to the next interest payment day.
(3)
If the transfer is under such an arrangement, the amount of the payment is the
amount of gross interest which the transferor accounts for.
(4)
If—
(a)
the transfer is not under such an arrangement, and
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(b)
the settlement day is itself an interest payment day for the securities,

the amount of the payment is nil.
(5)
If—
(a)
the transfer is not under such an arrangement, and
(b)
the settlement day is not an interest payment day for the securities,
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the amount of the payment is an amount equal to—

where—
I is the interest payable on the securities on the first interest payment day
after the settlement day (“the payment day”),
A is the number of days in the period beginning with the day after the
30
settlement day and ending with the payment day, and
B is the number of days in the period beginning with the first day on
which that interest accrues and ending with the payment day.
(6)
For the purposes of subsection (5), the first day on which that interest accrues
is taken to be—
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(a)
the day after the last interest payment day before the settlement day, or
(b)
if there is no interest payment day before the settlement day, the first
day of the first interest period of the securities.
(7)
In a case where no one is treated as the transferor (see section 648(4)), this
section has effect as if—
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Income Tax Bill
Part 12 — Accrued income profits
Chapter 2 — Accrued income profits and losses
329

(a)
in subsection (1) the words “by the transferor” were omitted, and
(b)
subsections (2), (3), (4)(a) and (5)(a) were omitted.
(8)
In a case where no one is treated as the transferee (see sections 621(2) and (3)
and 648(2)), this section has effect as if—
(a)
in subsection (1) the words “to the transferee” were omitted, and
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(b)
subsections (2), (3), (4)(a) and (5)(a) were omitted.
(9)
Subsection (5) is subject to section 659 (transfers with or without accrued
interest: interest in default).
(10)
See also section 663(2) (reduction of amount of payment under this section
where transfer to maker of manufactured payments).
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634
Payment on transfer with unrealised interest
(1)
In the case of a transfer of securities with unrealised interest where the
settlement day falls within an interest period, for the purposes of this Chapter
a payment is treated as made to the transferor in that period.
(2)
The amount of the payment is equal to the unrealised interest.
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(3)
Subsection (2) is subject to section 660 (transfers with unrealised interest:
interest in default).
(4)
No one is treated as making the payment.
(5)
Accordingly, the payment is not brought into account in determining whether
the transferee is treated as making accrued income profits or losses under
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section 628.
(6)
But see section 681 (exemption for unrealised interest received by transferee
after transfer).
(7)
See section 630 for the rules that apply to transfers of securities with unrealised
interest where the settlement day falls outside an interest period.
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635
Payment on transfer of variable rate securities
(1)
In the case of a transfer of variable rate securities where the settlement day falls
within an interest period, for the purposes of this Chapter a payment is treated
as made to the transferor in that period.
(2)
The amount of the payment is such amount as is just and reasonable.
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(3)
No one is treated as making the payment.
(4)
Accordingly, the payment is not brought into account in determining whether
the transferee is treated as making accrued income profits or losses under
section 628.
(5)
See section 630 for the rules that apply to transfers of variable rate securities
35
where the settlement day falls outside an interest period.