Income Tax Act 2007 section 648

Strips of gilt-edged securities

Section 648 sets out how the accrued income scheme applies when gilt-edged securities are exchanged for strips, or when strips are reconsolidated back into a single gilt-edged security.

• When a gilt is stripped into its component parts, this counts as a transfer by the holder, but nobody is treated as the recipient — the strips themselves fall outside the accrued income scheme and are instead taxed under the deeply discounted securities rules.
• When strips are reconsolidated into a single gilt, this counts as a transfer to the person acquiring the consolidated security, but nobody is treated as the transferor — again, the disposal of the strips is dealt with under the deeply discounted securities regime.
• If the exchange takes place after the security has gone ex-dividend but before the dividend is actually paid, it is treated as a transfer without accrued interest; in all other cases, it is treated as a transfer with accrued interest.
• Any intermediate transactions forming part of the exchange process — such as those involving the market maker who facilitates the exchange — are disregarded as transfers for accrued income scheme purposes.

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