accrued income scheme

A scheme which charges to tax that proportion of the sale price of securities within its scope (debt securities), which is equivalent to the income that has accrued on the security since the last income payment date (sections 710 and 728, Income and Corporation Taxes Act 1988 for periods before 2007-2008 and Chapter 2, Part 12, Income Tax Act 2007 thereafter). The effect of the scheme is that if a buyer gives, say, 105 for 100 nominal, of which 102 is the ‘clean' price (that is, ignoring the accrued income since the last income payment date) and the remaining 3 represents the income which has accrued since that date, the accrued income scheme is designed to tax the 3 as income of the seller. Until the introduction of the accrued income scheme the 105 was treated as entirely capital. The scheme generally gives a credit to a buyer of securities so that when the buyer receives, say, an income payment of 5 at the end of the income period, the 3 which the buyer gave as part of the purchase price for the securities and which was treated as income of the seller is deducted from the income for the buyer's tax purposes.

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convertible bond

exchangeable bond