Revenue Note for Guidance
Schedule 21 contains the necessary provisions for determining the appropriate amount of income received in respect of bond-washing transactions for the purposes of Chapter 1 of Part 28. In that Chapter, the purchase price of securities is, in certain circumstances, to be reduced by reference to the interest to be earned from the securities; and, in other cases, the interest earned on the securities is to be excluded for tax purposes. In general, the amount by which the purchase price is to be reduced in the case of dealers in securities is the net income accrued up to the date of purchase. In the case of exempt institutions and non-financial traders, the amount to be excluded form income for tax purposes is the gross amount (net amount plus tax credit) of the income which accrued up to the date of purchase.
The broad effect is that, in the case of dealers in securities, that part of the purchase price which is paid for accrued interest is disallowed in computing for tax purposes their profits and losses; and that, in the case of the other bodies affected by the provisions, income equivalent to the gross amount of interest accrued up to the date of the purchase is disregarded for tax purposes.
par 1 For dealers in securities, the appropriate amount in respect of the interest is the net interest received by the first buyer.
par 2 For exempt bodies and non-financial traders, the appropriate amount of interest is the gross amount of interest receivable by the first buyer. The gross amount is the net amount of interest plus the associated tax credit.
par 3(1) Broadly speaking, the “appropriate amount” of interest caught is determined by the formula —
Number of days from last “ex div” date up to date before the date of purchase
Number of days from the last “ex div” date to the date before the next “ex div” date
par 3(2) The first and second relevant dates are the earliest possible last and next “ex div” dates. The provision ensures that manipulation of the respective dates cannot occur.
par 3(3) An appropriate modification of this rule is made for cases where there was no previous “ex div” date (because the relevant payment was the first payment of income on the securities).
par 3(4) Provision is made for the Appeal Commissioners to apply these rules with appropriate modifications in respect of securities not quoted on the Dublin Stock Exchange.
par 4 Appropriate modifications of these rules are made for certain British Government securities where the purchase price is increased to take account of gross interest accruing on a day to day basis.
Relevant Date: Finance Act 2021