Query on reporting "purchase accrued interest" of a corporate bond on self-assessment taxreport

Dear HMRC, Please can you advise how to report the "purchase accrued interest" of the corporate bond in the tax return. For example, if a bond pays interest twice a year, and a person purchased the bond in between interest payment dates, the buyer of the bond would typically pay the interest that has accumulated up to the date of the sale to the seller (i.e. "purchase accrued interest"). If a person pay the "purchase accrued interest" in the current tax year and only receive the interest payment (which will include the "purchase accrued interest" and the accrued interest that has accumulated since the purchase) in the next tax year. Thank you for your assistance in this matter. Kind regards, 

Hi,

Interest should be reported in the tax year that it is received. However, if the type of bonds means that you cannot access the funds to make a withdrawal then it will be the year in which it matures.

Please see guidance at:

SAIM2440 - Interest: taxation of interest: when interest arises

Thank you.

Hi, Thank you very much for your reply. I am writing further to inquire if a person had negative interest, about should he/she report it on his/her tax return. For instance, the negative interest may due to a person paid "purchase accrued interest" in current tax year but only receive the actual interest payment in the next tax year. Thank you for your time and assistance.

Hi,

UK income tax is calculated using the arising basis.  

This means that if the interest is paid in the next tax year, then that is the year it is taxable.

Thank you.

Hi HMRC Admin, Referring above Q&A  may I express that below statements are correct? Please correct me if it is not correct, thanks. 1) In Mar 2023, I bought a US bond in open market (the bond pays interest twice a year, in Jan and July respectively). At that time, I paid the accrued interest (interest between Jan to Mar 2023) to the seller and created a negative interest. In this case, I should report this negative interest in tax year 2022/2023. 2) In July 2023, I received the interest from the bond. In this case, I should report this interest in tax year 2023/2024. 3) In Oct 2023, I sold the bond in open market and got the accrued interest (interest between July to Oct 2023) from the buyer. In this case, I should report this accrued interest in tax year 2023/2024. Is my understanding correct? In addition, since it is a foreign income, I should report the above gains (no matter positive or negative amount) in SA106 F2 column B. Is it correct? Many thanks

Hi ACTS,
US government bonds, sometimes known as T-bills or treasury bills are generally taxed as income rather than capital gains.  
The return is paid at maturity rather than regular interest payments.  In the UK, these are known as deeply discounted securities, with the discount being the difference between the price at which they were issued and the price received at maturity.  
On a foreign investment the income is the difference between the purchase and redemption price after each has been converted to sterling on the day the transactions took place, so includes any foreign exchange gains.  Losses cannot be deducted. 
Have a look at SAIM3010 - Deeply discounted securities: introduction for more information. 
Loss relief on deeply discounted securities was largely abolished on 27/03/23, as explained at SAIM3080 - please see link below.
There is an exception to this rule for government securities and there is also a special rule that relates to securities held before the above date.  
SAIM3080 - Deeply discounted securities: taxation: losses Losses: listed securities held since 26 March 2003. 
 You are correct with your dates.
Thank you.

Hi HMRC Admin, Thank you for the explanation on the Deeply discounted securities (DDS). The Bond I hold is: - It's coupon value is 100, maturity value is 100. I bought it from stock exchange at 95 due to the interest rate increased and the price dropped from 100 to 95. This bond pays interest twice a year. In this case, since there is no discount on the coupon value when it was issued, and it is not zero interest bond, this bond is not counted as DDS, is it correct? If above is correct, then Accrued Income Scheme (AIS) is applied. In this case, for below three transactions, are the tax year that I declare the income correct? Transaction 1) In Mar 2023, I bought the bond in stock exchange (the bond pays interest twice a year, in Jan and July respectively). At that time, I paid the accrued interest (interest between Jan to Mar 2023) to the seller and created a negative interest. In this case, I should report this negative interest in tax year 2023/2024 (per AIS that the accrued income would be chargeable in the tax year in which the applicable interest period ends) and declare it in SA106? Transaction 2) In July 2023, I received the interest from the bond. In this case, I should report this interest in tax year 2023/2024 and declare in SA106? Transaction 3) In Oct 2023, I sold the bond and got the accrued interest (interest between July to Oct 2023) from the buyer, and also have a gain from the price difference (I bought at 95 and sold at 98, gain 3). In this case, I should report this accrued interest in tax year 2023/2024 and declare it in SA106, and the declare the gain from price in SA108? Thank you!

Hi,

You can see guidance on interest below as it gives information on the sale of interest and what HMRC considers to be interest, negative interest is mentioned:

SAIM2450 - Interest: taxation of interest: accrued interest

The guidance below gives details about how to calculate and when to declare interest in your return: 

Accrued Income Scheme (Self Assessment helpsheet HS343)

You can see guidance to advise when you will need to report a capital gain to HMRC here:

Capital Gains Tax: what you pay it on, rates and allowances

Thank you.

If I buy a corporate bond between dividend dates it is sold dirty. ie I pay the seller the dividend up to the purchase date. say 50 GBP This is incorporated into the purchase price, but is still there. When the dividend date arrives I receive the whole dividend, usually for 6 months. say 200 GBP Do I declare and pay tax on 200 GBP ? or on the proportion which relates to the time I have had the bond. 200 - 50= 150 GBP ?

Hi,

Please refer to guidance at:

Accrued Income Scheme (Self Assessment helpsheet HS343)

Thank you.