Income Tax Act 2007 section 627

Meaning of "variable rate securities"

Section 627 defines what counts as a "variable rate security" for the purposes of the accrued income scheme, which matters because the normal rules for transferring securities assume interest accrues evenly — an assumption that does not hold true for variable rate securities.

• Securities are classified as variable rate unless their terms of issue guarantee a single, consistent type of interest rate from issue to redemption — either a fixed rate, a rate tied to a standard published base rate, or a rate linked to a published price index.
• Variable rate securities include those with periods where no interest is payable or where sharply different rates apply at different times, making the even-accrual assumption unreliable.
• A "published index of prices" means the UK retail prices index or any similar general price index published by a foreign government or its agent.
• Where securities are issued in tranches and attract an extra return under section 649, a special rule applies: the interest payable on the first payment date after issue is treated as covering the period from the relevant earlier date through to that payment date, for the purpose of deciding whether they are variable rate securities.