If you buy on the London Stock Exchange a 'convertible fixed interest loan stock' this trades at a 'Dirty Price' and you are not informed how much accrued interest is in the price of the loan stock at the time of purchase. Does this mean that the convertible stock is outwith the 'accrued income scheme' and that the total 'dirty' cost is reported to HMRC for CGT purposes with no interest element having to be reported to HMRC for Income Tax Purposes.
Hi.The accrued income does not become part of the capital where it is not specified in the purchase contract. It is still regarded as income. If it wasn't, all interest paying stocks would be traded this way.The "dirty price" is deemed to include accrued interest. You have to extract the accrued interest from the cost using the nominal value of the bond, the rate of interest and the number of days since the last interest payment before you bought the bond to calculate it. There are some examples of how to calculate the interest here. Let me know if you have any further queries.TonyTax41090.623458912
So basically if I get a contract note for a purchase of a convertible loan stock with a dirty price (no accrued interest shown on the contract) will I have to calculate myself the split between capital and 'deemed' interest for CGT and Income Tax purposes?
That's correct. The interest accrues on a straight-line basis on a fixed interest stock so it's fairly straighforward towork it out as the example in link to the HMRC website I gave you shows.
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