Income Tax (Trading and Other Income) Act 2005 section 151

Exchanges of gilts for gilt strips

Section 151 sets out how trading profits are calculated when a trader exchanges a gilt-edged security for its constituent strips, ensuring that any profit or loss on the exchange is recognised for tax purposes.

• When a trader exchanges a gilt for strips, the gilt is treated as redeemed at its market value at the time of the exchange, creating a taxable event even if the accounts do not show one.
• Each strip received is treated as acquired for a proportion of the gilt's market value, calculated by dividing the market value of that individual strip by the total market value of all strips received.
• All market values are determined at the time of the exchange, with regulations under section 154 providing further guidance on how market values are established.
• These rules apply equally to professions and vocations as they do to trades.