Accrued Interest


C

CWatters

When you buy a Fixed Interest Bond you pay the previous owner the accrued
interest to date of purchase. This can be offset against the interest paid
by the bond for tax purposes (eg so you only pay tax on the interest for the
period you held the bond).

How do you get Money to show this on tax reports?
 
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J

Jamie Stallwood

When you buy a Fixed Interest Bond you pay the previous owner the accrued
interest to date of purchase. This can be offset against the interest paid
by the bond for tax purposes (eg so you only pay tax on the interest for the
period you held the bond).

How do you get Money to show this on tax reports?
So, you are saying you buy the bond for it's face price, plus costs of
the pro-rata interest, then 'sell' the bond for the returned interest
at the end. The chargeable gain is sell minus buy, so it should fit
nicely into Money.
 
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C

CWatters

So, you are saying you buy the bond for it's face price, plus costs of
the pro-rata interest, then 'sell' the bond for the returned interest
at the end. The chargeable gain is sell minus buy, so it should fit
nicely into Money.
Yes and no. You can enter it OK and money probably calculates any gains
ok... but Money doesn't do the _Income_ tax calculation correctly.

The relevant UK tax rules are here...

http://www.inlandrevenue.gov.uk/pdfs/ir68.htm

but thats a complex guide so I'll give a small quote..

"Buyers <snip> If accrued interest is added to the price you pay, you get a
deduction for that amount against the next payment of interest"

What does it mean...

Suppose I buy the bond 1 day before it pays interest and plan to hold it
indefinitly. In the tax year of purchase I will have paid the previous owner
364 days Interest and recieved 365 days Interest from the bond. So my tax
return should state that I got 1 days interest not 365! Money doesn't do
this calculation it reports the full 365 days.

In subsequent tax years I _will_ recieve 365 days interest so my tax report
should say 365 days interest

In the tax year I sell.... I may recieve 365 days interest plus some accrued
interest (depending on the date) from the buyer - so the tax report should
be for _more_ than 365 days interest.

Colin
 

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