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Hello,
I would appreciate the help with the below question.
Could you please clarify when “interest occurred prior to purchase” should be substract from interest income?
many thanks Anna
” Ahmed purchased £ 10,000 (nominal) gilt, paying interest 2% , for £11,000 on 1 June 2019. Interest payble on 31 March and 30 September.
He sold the gilts on 29 Feb 2020 for £ 11,400 (including accrued interest). How much will Ahmed include in saving income in tax year 19/20/Soulution form Kaplan:
Interest rec. (10,000 *2% *6/12) = 100
less: Interest occurred prior to purchase (1 April to 31 May 2019) (£ 10,000*2%*2/12) = (33)
Interest accrue: 1 Oct 19 to 29 Feb 20) £83Total int, income: £150
BTW There is another question number 12, exactly the same idea, but the prior to purchase interest was not deducted from interest income.
Firstly please review your study notes – p.8 chapter 2 section 3.3 on the Accrued Income Scheme working through the given example and then apply to your question.
In respect of the other question (12) I can only assume that it did NOT say in the question, as it does in the question above – “including accrued interest”.thank you for comming back to me.
I have certenly review the notes before I’ve asked the question, and I understand the concept that when the sale is made the seller has to pay the tax on “hidden” interest. However, I struggle to understand why the seller has to also deduct the interest occurred prior to purchase. I am afraid this was not in the notes.
Could you please shed some light on it? There must be something we are not seeing here
Thank you so much in advance.
Please as a reference point here is the question 12 and 14 (so you do not have to scroll up)
———————————————————————————————————————–
Q 14” Ahmed purchased £ 10,000 (nominal) gilt, paying interest 2% , for £11,000 on 1 June 2019. Interest payble on 31 March and 30 September.
He sold the gilts on 29 Feb 2020 for £ 11,400 (including accrued interest). How much will Ahmed include in saving income in tax year 19/20/Soulution form Kaplan:
Interest rec. (10,000 *2% *6/12) = 100
less: Interest occurred prior to purchase (1 April to 31 May 2019) (£ 10,000*2%*2/12) = (33)
Interest accrue: 1 Oct 19 to 29 Feb 20) £83Total int, income: £150
——————————————————————————————————————————Q12
Matthew purchased (nominal value) gilt, paying interest at 1% for £211,000 on 1 Sep 2018. Interest is payable half yearly on 30 June and 31 December. He sold gilts on 2019 for £ 2013,000 (including accrued interest).
Solution per Kaplan:*
Interest received 30 June 2019 (200,000*1%*6/12) = 1000
Interest accrued 1 July 2019 to 30 November 2019 200,000 * 1%*5/12) = 833Total interest income: £1,833
I
I assume that in each question the requirement is to compute the assessment for 2019/20.
In Q.14 both the purchase and the sale take place in that tax year so you have to deal with both the purchase and the sale to establish the assessment – I directed you to the study notes in my earlier reply as the final short paragraph of that note shows you how to deal with the purchaser under the accrued income scheme which appeared to be the issue that worried you.
In Q.12 the purchase takes place in the 2018/19 tax year and would have been dealt with in dealing with the assessment of that tax year – it is irrelevant in computing the assessment for 2019/20
I hope this helps
Thank you I thning got it now, in simple terms the first interest he receives in not for full 6 months, because the sell has happend on 1 June 2019, hence the 2/12 on the interest has been already taxed on the seller side, and he only gets the 4 months worth of the interest on 30 Sep 20.
so much struggle for just two point questions 🙂
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