Commentary on Sections Overview Chapter 2: Accrued income profits and losses Section 632: Payment on transfer with accrued interest
1847.This section sets out the payments treated as made when securities are transferred with accrued interest. It is based on section 713 of ICTA.
1848.Subsection (1) sets out the payment treated as made by the transferee to the transferor. If there are no other transfers of the same kind of security in the interest period, the effect of treating this payment as made is:
	to charge the transferor to income tax on the interest accruing on a day-by-day basis to the settlement day, that is, the transferor makes an accrued income profit in accordance with section 628 which is taxed by section 616, and
	to give the transferee equivalent relief when the transferee is taxed (e.g. under Chapter 2 of Part 4 of ITTOIA) on the interest arising at the next interest payment date, that is, the transferee makes an accrued income loss in accordance with section 628 which is relieved under section 679.
1849.Subsection (1) also indicates that the payment is treated as made in the interest period in which the settlement day for the transfer falls. This also determines the interest period in which the profit arises and therefore the tax year in which the profit is taxed.
1850.Subsections (2) and (3) quantify the amount of the payment where the interest which has accrued to the settlement day is separately accounted for to the transferor by the transferee (as it is for many transactions within the financial markets, with a corresponding adjustment in the consideration for the transfer of the security). The amount of the payment is the amount of interest accounted for.
1851.If subsections (2) and (3) do not apply and the settlement day is coincidentally an interest payment day, subsection (4)quantifies the amount of the payment as the amount of the interest payable on that day.
1852.In other cases, subsection (5) provides for the interest due on the next interest payment day to be time apportioned to ascertain the interest accruing to the settlement of the transfer. The formula applies regardless of whether the interest period in question would be (but for section 673 (meaning of “interest period”)) greater than 12 months.
1853.Subsections (7) and (8) modify the operation of subsection (1) if the transfer in point is one for which there is either no transferor or no transferee because of the rules applying in the sections mentioned.