Commentary on Sections Overview Chapter 2: Accrued income profits and losses Section 660: Transfers with unrealised interest: interest in default
1951.This section deals with a transfer of securities with unrealised interest where interest is in default. It is based on section 719 of ICTA.
1952.Where securities are transferred with unrealised interest, the transferor is effectively charged to income tax on the unrealised interest (see section 630 and section 634). (The transferor may also be charged on other accrued income profits in respect of the same transfer if it is also a transfer of another of the types mentioned in section 622(2).)
1953.Where the issuer of the securities has defaulted on the obligation to pay interest, that default may affect the value of the interest coupons which are transferred (as, for example, when bearer securities are transferred with uncashed coupons attached). Where this is the case, under subsections (2) and (3), when calculating the amount of the payment under section 634 or the amount of the accrued income profits under section 631, the value of the right to receive interest (“A”) is substituted for the amount of the unrealised interest.
1954.However, A may be reduced where there have been successive transfers. Where this is the case, the calculation rules in section 661 apply.
1955.This section only deals with the position of the transferor. Accordingly subsection (6) signposts the exemption under section 681 for interest payable to the transferee. See in particular subsections (3) to (6) of that section which deal with the situation where unrealised interest is in default.