Commentary on Sections Overview
1792.This Part is based on sections 710 to 727A in Chapter 2 of Part 17 of ICTA. These provisions are commonly known as the “accrued income scheme”. The Part has therefore been named by reference to this common name. The accrued income scheme deals with the transfer of interest bearing securities where the person taxable in respect of interest on the securities may not be the person who held the securities when that interest was accruing. The scheme attributes to certain persons “accrued income profits”, taxed under Chapter 2 of this Part, and “accrued income losses”, which may reduce liability under other provisions in respect of the interest arising. Certain transactions and/or certain persons may be excluded from the operation of the scheme (in particular, if an individual has, or personal representatives or certain trustees have, only small holdings of securities).
1793.Chapter 2 sets out the provisions which explain when the scheme applies and to whom, how to calculate accrued income profits and accrued income losses and when accrued income profits are taxed. It also contains definitions for the scheme.
1794.Chapter 3 sets out how relief is obtained for accrued income losses. Accrued income losses are not set against accrued income profits (as a figure of profits or losses is already a net figure for payments treated as made or received by the person in question). Rather, relief for accrued income losses is given by setting the losses against interest received on the securities in relation to which the losses arise (that is, the interest which has been taken into account in calculating the losses). In effect, the accrued income losses exempt from income tax so much of the interest as is equal to those losses.
1795.Prior to FA 1996, the accrued income scheme applied for both income tax and corporation tax. Chapter 2 of Part 4 of FA 1996 (loan relationships) now applies for corporation tax in relation to transfers of securities with accrued interest. The transitional application of the scheme for corporation tax as regards transfers of securities taking place before 1 April 1996, in section 710(1A) of ICTA, has been repealed as redundant in conjunction with the income tax rewrite (see Schedule 3 to this Act which repeals sections 710 to 727A of ICTA).
1796.Section 728 of ICTA (power to obtain information for the purposes of sections 710 to 727A) is not rewritten in this Part.