Income and Corporation Taxes Act 1988

Charge to tax on disposal of securities

4 (1) On the disposal by any person of any deep discount security—

(a) an amount which represents the accrued income attributable to the period between his acquisition and disposal of the security (the (“period of ownership”), less any amount or amounts treated as income by virtue of paragraph 3 above, shall be treated as income chargeable to tax under Case III or, as may be, Case IV of Schedule D; and

(b) the tax shall (notwithstanding anything in sections 64 to 67 but subject to sub-paragraph (5) below) be computed on the income so arising from any disposal made in the year of assessment.

(2) The amount which represents the accrued income attributable to any period of ownership is the aggregate of the income elements for each income period or part of an income period in the period of ownership.

(3) In relation to any security, the income element for any income period shall be determined by applying the formula—

where—

• A is the adjusted issue price;

• B is the yield to maturity; and

• C is the amount of interest (if any) attributable to the income period.

(4) The income element for any period (the (“short period”) falling within an income period shall be determined by applying the formula—

where—

• I is the income element for the income period in which the short period falls;

• P is the number of days in the short period; and

• Y is the number of days in that income period.

(5) Where—

(a) by virtue of sub-paragraph (1) above income tax is chargeable under Case IV of Schedule D, and

(b) the person making the disposal satisfies the Board, on a claim in that behalf, that he is not domiciled in the United Kingdom, or that, being a British subject or a citizen of the Republic of Ireland, he is not ordinarily resident in the United Kingdom,

the tax shall be computed on the amounts, if any, received in the United Kingdom in the year of assessment in question in respect of the sum mentioned in sub-paragraph (1)(a) above (any such amounts being treated as income arising when they are received in the United Kingdom).

(6) For the purposes of sub-paragraph (5) above—

(a) there shall be treated as received in the United Kingdom all amounts paid, used or enjoyed in, or in any manner or form transmitted or brought to, the United Kingdom; and

(b) subsections (6) to (9) of section 65 shall apply as they apply for the purposes of subsection (5) of that section.

(7) Sections 348 to 350 and 123 shall not apply to so much of the proceeds of redemption of a deep discount security as represents income chargeable to tax under Case III or, as may be, Case IV of Schedule D.