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Posted Tue, 04 Jul 2023 09:38:49 GMT by kms
I purchased a United States Treasury Note in the secondary market (not as a new issue) at 96% of par. (At new issue the note was issued at a de minimis discount to par). I sold it at 99% of par prior to the note’s maturity. I had two questions: (i) do the Deeply Discounted Security (DDS) rules apply (i.e., do the rules apply to the secondary market purchase price or just to new issue sale prices)? and (ii) is the 3% gain (the difference between purchase price of 96% and sale price of 99%) treated as income or capital gain? Many thanks. -KS
Posted Mon, 10 Jul 2023 08:19:20 GMT by HMRC Admin 32 Response
Hi,

Please refer to guidance at:

SAIM3000 - Deeply discounted securities

Thank you.
Posted Wed, 26 Jul 2023 09:03:51 GMT by kms
Thank you for the SAIM3000 guidance. Can you please provide me with a response to the second part of the query ("is the 3% gain (the difference between purchase price of 96% and sale price of 99%) treated as income or capital gain?")? Much appreciated.
Posted Wed, 02 Aug 2023 17:11:34 GMT by HMRC Admin 20 Response
Hi kms,

This is foreign income - SAIM3070 - Deeply discounted securities: taxation: profit on disposal

Thank you.
Posted Fri, 04 Aug 2023 11:15:12 GMT by kms
Thank you for your reply and apologies in advance if I'm being stupid but I remain confused. The link you provided appears to define a "deeply discounted security" by reference to the "issue price" ("It is a security where the amount payable on maturity...may exceed the issue price by more than..."). In the example I gave, I indicated that the security was ***issued*** without a discount but I purchased it in the ***secondary*** market at a discount. Can you please explain why the DDS rules apply as indicated by your response that the gain would be taxed subject to SAIM3070 ("Deeply discounted securities: taxation: profit on disposal)? Your guidance is very much appreciated.
Posted Wed, 09 Aug 2023 11:16:30 GMT by HMRC Admin 32 Response
Hi,

Please see additional guidance at:

SAIM3010 - Deeply discounted securities

Thank you.
Posted Wed, 09 Aug 2023 15:59:37 GMT by kms
Thank you for the further guidance. My interpretation is that a U.S. Treasury security issued at $100 and that redeems at $100 (i.e., the issue price and redemption price are the same) is NOT treated as a Deeply Discounted Security even if it is purchased in the secondary market at a substantial discount. Can you kindly confirm that my interpretation is correct?
Posted Tue, 15 Aug 2023 14:06:57 GMT by HMRC Admin 32 Response
Hi kms,

Yes, that is correct.

Thank you.
Posted Sun, 27 Aug 2023 11:49:30 GMT by kms
Many thanks.

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