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In the past I have treated all accrued interest as chargeable under TA 1988, s 714; i.e. as Schedule D, Case VI income. In a specific case that I am now dealing with, the client's brother has suggested that, as the interest has accrued on eurobonds, the income should be assessed under Schedule D, Case IV and not Case VI.
In the past I have treated all accrued interest as chargeable under TA 1988, s 714; i.e. as Schedule D, Case VI income. In a specific case that I am now dealing with, the client's brother has suggested that, as the interest has accrued on eurobonds, the income should be assessed under Schedule D, Case IV and not Case VI.
TA 1988, s 714 refers to 'a sum on securities of a particular kind'. The general definition of securities detailed in TA 1988, s 710, which covers TA 1988, ss 711 to 728, seems to include eurobonds and s 714 does not appear to indicate any distinction between the treatment of foreign and UK securities.
I would therefore assume that the interest accrued on the eurobonds is chargeable under Schedule D, Case VI, despite the fact these are foreign securities.
I should be most grateful for any comments or views from readers regarding the validity and effects of this approach.
(Query T16,590) — Eurosceptic.
Reply by Kalonymous
The definition of 'security' in TA 1988, s 710 extends to overseas securities. This is clear from s 710(2)(a) which brings within the scope of the accrued income scheme (AIS) securities 'whether of the government of the United Kingdom, any other government, any public local authority in the United Kingdom or elsewhere …' (emphasis added). Similarly, any amounts charged under the AIS provisions were (until the introduction of Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) on 6 April 2005) taxed under Schedule D, Case VI (TA 1988, s 714(2)). There was no parallel Schedule D, Case IV or V charge in respect of overseas securities.
The charging provisions are disapplied by TA 1988, s 715(1)(j) (and the corresponding relieving provisions by s 715(2)(b)) in circumstances where interest on the securities would be subject to income tax under Case IV or V. But this applies only where the taxpayer is entitled to be taxed on overseas income on the remittance basis.
Consequently, Eurosceptic does appear to be correct when he applies the AIS provisions to the Eurobonds and treats the deemed income as being chargeable under Schedule D, Case VI.
This will be the case whether or not the interest on the eurobonds themselves is considered to represent UK or overseas income.
Of course, from 6 April 2005, the deemed income under the AIS rules has ceased to be called 'Schedule D, Case VI' income (ITTOIA, Sch 1 para 295). But the overall effect remains the same.
