What is a strip under section 444 of ITTOIA 2005?

A strip is a security derived from an underlying bond or stock that isolates individual interest or principal payments as separate tradeable securities. It must satisfy three conditions: representing specific remaining payments (A), being issued alongside securities covering all remaining payments (B), and not replicating a proportionate share of the whole bond (C).

What are the issuer requirements for a strip depending on acquisition date?

Strips acquired after 26 March 2003 must have been issued by or on behalf of the government of any territory worldwide. Strips acquired on or before that date must have been issued under the National Loans Act 1968, and the underlying security must itself have been a gilt-edged security, effectively limiting qualification to UK government bonds.

How does section 444 treat dividend payments once the balance has been struck?

Once the balance has been struck for a dividend on the underlying security, the payment relating to that dividend is no longer treated as a remaining payment for the purposes of conditions A to C. This practical timing rule prevents a strip from being defined by reference to payments that have already been determined and are about to be paid.

Does section 444 affect the meaning of corporate strip in Chapter 8?

No. The definition of 'strip' in section 444 is entirely separate from the concept of a 'corporate strip', which has its own distinct definition in section 452E of the same chapter. Nothing in section 444 changes, limits, or otherwise affects the meaning of the term corporate strip as used elsewhere in Chapter 8.

Income Tax (Trading and Other Income) Act 2005 section 444

Meaning of "strip" in Chapter 8

Section 444 defines what a "strip" means for the purposes of Chapter 8, setting out the conditions a security must meet and the types of government issuer required depending on when the strip was acquired.

A strip is a security derived from an underlying stock or bond that separates out individual interest or principal payments, and must meet three conditions (A, B and C) relating to the nature of the payments it represents
Strips acquired after 26 March 2003 must have been issued by or on behalf of the government of any territory, whereas strips acquired on or before that date must have been issued under the National Loans Act 1968 with a gilt-edged security as the underlying security
Once the balance has been struck for a dividend on the underlying security, any payment due in respect of that dividend is no longer treated as a remaining payment for the purposes of the three conditions
This definition does not affect the separate meaning of "corporate strip" within the same chapter, which is defined in section 452E

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