Bond accrued interest taxation question

itwasntme001

I bought two different gilts in the tax year 24/25.  Both times I had to pay some accrued interest.  However bond 1 paid interest in the 24/25 tax year but bond 2 never (first interest I will receive will be in the current tax year).

For the self assessment for last tax year how do I account for the accrued interest, do I deduct the accrued interest from both bonds 1 and 2 from the interest I received for bond 1?  Or can I only deduct the accrued interest from bond 1?  And bond 2 accrued interest can deduct from interest received in tax year 25/26?

TIA.

aroominyork

You deduct interest for both of them. Don't think of it as deducting Bond 2 accrued interest from Bond 1 received interest - that will confuse you. Just total interest received during the year, and deduct accrued interest that you paid during the year.

Edit: see following posts - what I wrote above is wrong!

DRS1

Is that right?  I found this in the help sheet for the Accrued Income Scheme (section 8)

"You should only take into account accrued income profits or losses that arise in the tax year you’re looking at. The general rule is that you:

identify the date on which your sale or purchase of the securities took place and then

look for the date when the next interest payment falls due

The accrued income profit or loss on the transfer arises in the tax year into which that next interest payment date falls.

This means that the year in which a profit is taxed, or in which a loss is relieved, will not always be the year the securities were transferred, particularly if the transfer happens near the end of a tax year."

itwasntme001

DRS1 said:

Is that right?  I found this in the help sheet for the Accrued Income Scheme (section 8)

"You should only take into account accrued income profits or losses that arise in the tax year you’re looking at. The general rule is that you:

identify the date on which your sale or purchase of the securities took place and then

look for the date when the next interest payment falls due

The accrued income profit or loss on the transfer arises in the tax year into which that next interest payment date falls.

This means that the year in which a profit is taxed, or in which a loss is relieved, will not always be the year the securities were transferred, particularly if the transfer happens near the end of a tax year."

I read that too and their example as well.  It is not clear at all if they mean interest and accrued interest is for one particular gilt issue (and not mixed with other gilts).  But I suppose what you bolded can be intepreted as such, maybe.

SnowMan

DRS1 is correct

It's only the interest payment for bond 1 (net of accrued interest for bond 1 on purchase) that form part of your 2024/2025 taxable interest received and needs to be declared on the 2024/2025 tax return.

The interest payment for bond 2 (net of accrued interest for bond 2 when it was purchased) forms part of your taxable interest for 2025/2026 and goes on your 2025/2026 tax return, because that first interest payment (coupon) after purchase falls in the 2025/2026 tax year.

See this thread also

https://forums.moneysavingexpert.com/discussion/6600091/where-to-declare-gilt-interest-coupons-on-self-assessment

masonic

The accrued interest is added to the price you pay when you buy the gilt. Therefore, you are entitled to deduct this from the taxable interest of the next coupon you receive. It wouldn't make any sense to apply this relief in a different tax year to the coupon payment for the gilt in question.

aroominyork

Thanks for correcting me! So that also means that if you sell a gilt in February 2025 and the next coupon is paid in June 2025, you declare it in 2025/26?  

masonic

aroominyork said:

Thanks for correcting me! So that also means that if you sell a gilt in February 2025 and the next coupon is paid in June 2025, you declare it in 2025/26?  

I don't think that would be the case because you receive the accrued interest immediately as part of the sale proceeds.

Compare with closing a savings account in Feb that pays annual interest each June.

aroominyork

masonic said:

aroominyork said:

Thanks for correcting me! So that also means that if you sell a gilt in February 2025 and the next coupon is paid in June 2025, you declare it in 2025/26?  

I don't think that would be the case because you receive the accrued interest immediately as part of the sale proceeds.

Compare with closing a savings account in Feb that pays annual interest each June.

But would that be consistent with "identify the date on which your sale or purchase of the securities took place and then look for the date when the next interest payment falls due. The accrued income profit or loss on the transfer arises in the tax year into which that next interest payment date falls." My italics.

masonic

aroominyork said:

masonic said:

aroominyork said:

Thanks for correcting me! So that also means that if you sell a gilt in February 2025 and the next coupon is paid in June 2025, you declare it in 2025/26?  

I don't think that would be the case because you receive the accrued interest immediately as part of the sale proceeds.

Compare with closing a savings account in Feb that pays annual interest each June.

But would that be consistent with "identify the date on which your sale or purchase of the securities took place and then look for the date when the next interest payment falls due. The accrued income profit or loss on the transfer arises in the tax year into which that next interest payment date falls." My italics.

No, it is not consistent with that text, but unless you sell very close to the next distribution date, you are not entitled to any of the next coupon payment and you wouldn't be able to claim an accrued income loss for the next distribution.

You would need to examine your contract note to see whether you've sold for less than the clean price and are therefore taxed on the next distribution less accrued income loss.

Edit: perhaps even accrued income profit on sales does always arise in the tax year of the next distribution as that is certainly how the bottom part of the article is written. Even though it is paid into an account upon which you are free to draw potentially up to 6 months earlier.

GeoffTF

masonic said:

Edit: perhaps even accrued income profit on sales does always arise in the tax year of the next distribution as that is certainly how the bottom part of the article is written. Even though it is paid into an account upon which you are free to draw potentially up to 6 months earlier.

That is correct:

"8. When do accrued income profits or losses arise

You should only take into account accrued income profits or losses that arise in the tax year you’re looking at. The general rule is that you:

* identify the date on which your sale or purchase of the securities took place and then
* look for the date when the next interest payment falls due
The accrued income profit or loss on the transfer arises in the tax year into which that next interest payment date falls.

This means that the year in which a profit is taxed, or in which a loss is relieved, will not always be the year the securities were transferred, particularly if the transfer happens near the end of a tax year."

https://www.gov.uk/government/publications/accrued-income-scheme-hs343-self-assessment-helpsheet/hs343-accrued-income-scheme-2025