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Hi Admin 32,
OK, that seems to go against "If the terms and conditions of the bond did not allow access until maturity, the interest would arise and be taxed at that point" from https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2440 (last updated just a month ago). I will, however, insist that a provider whose account is ambiguous on this point provides a definitive certificate each year to clear this up.
hmrc-internal-manuals/investment-funds/ifm13372 says "Where a participant receives an amount in respect of an interest in a reporting fund which is chargeable to tax as income but that amount is received (or treated as received) after the date of the disposal of the interest the amount is treated as received immediately before the disposal for the purposes of regulation 99." So for a reporting ETF, there is a 6 month period between the end of the accounting period (when the number of shares determines the Excess Reportable Income on which income tax must be paid) and the distribution date, when the income tax is payable, and if there was no sale at all, the ERI would be treated as another acquisition cost. If the entire holding is sold, the quoted paragraph clearly says the effective date for the acquisition cost would be moved to immediately before the disposal. But what if it is a partial disposal? Does "an interest" mean the investor has just one interest in the fund, which changes in size, but is still governed by "Sums treated as expenditure in this way are treated as incurred on the fund distribution date for the reporting period in respect of which the amount is treated as distributed"? Or do you say there are two "interests" - one which is the shares which are sold, and so has its the acquisition cost date moved to just before the disposal, and one which is the untouched shares, and which gets the acquisition cost at the usual distribution date? This makes a difference because in one scenario, the ERI, for capital gains purposes, is assigned purely to the untouched shares, and in the other, it is divided between the sold shares and the untouched shares. Which should we do?
To be clear: if the amount of interest is added to the balance of the bond each year, but, since it's a bond, you cannot access the interest in any way until it matures after three years, are you saying the interest is deemed to have been paid each year? The previous poster talked about "receiving notification of the interest", but you have replied about "receiving the interest", which are two different things.