Commentary on Sections Overview Chapter 2: Accrued income profits and losses Section 634: Payment on transfer with unrealised interest
1862.This section sets out the payment treated as made where securities are transferred with unrealised interest and where (as is normally the case) the settlement day for the transfer involved falls within an interest period. It is based on section 716 of ICTA. “Unrealised interest” is defined in section 625.
1863.A payment is treated as made to the transferor (see subsection (1)) but subsection (4) makes clear that no one is treated as making the payment. Subsection (5) therefore confirms that the deemed payment does not form part of any accrued income profit or loss calculation for the transferee.
1864.Subsection (2) provides that the amount of the payment is the amount of the unrealised interest. The effect of this section is that the transferor is charged to income tax on the amount of the unrealised interest.
1865.Subsection (6)signposts section 681 which, notwithstanding the rules in subsection (4) and (5), grants the transferee exemption from tax on the interest (when realised) if certain conditions are satisfied. That exemption is equivalent to the exemption given in section 679 by reference to accrued income losses.
1866.As explained in the commentary on section 622, where securities are transferred with unrealised interest they may also be transferred with or without accrued interest, and a payment may also arise under section 632 or 633.