Section 55 Taxation of strips of securities

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(1) In this section-

"chargeable period" has the same meaning as in section 321(2);

"market value" shall be construed in accordance with section 548;

"nominal value", in relation to a unit of a security, means-

(a) where the interest on the unit of the security is expressed to be payable by reference to a given value, that value, and

(b) in any other case, the amount paid for the unit of the security on its issue;

"opening value", in relation to a unit of a security from which at any time strips of the unit have been created by a person, means-

(a) in the case of a person who is carrying on a trade which consists wholly or partly of dealing in securities of which the unit of the security is an asset in respect of which any profits or gains are chargeable to tax under Case I of Schedule D, an amount equal to the market value of the unit of the security at the time the strips were created, and

(b) in the case of any other person, an amount equal to the lesser of-

(i) the market value of the unit of the security at the time the strips were created, and

(ii) the nominal value of the unit of the security;

"relevant day", in relation to a person who holds a strip, means-

(a) where the person is not a company within the charge to corporation tax, [31 December]¹ in a year of assessment, and

(b) where the person is a company within the charge to corporation tax, the day on which an accounting period of the company ends;

"securities" has the same meaning as in section 815(1), and a unit of a security shall be construed accordingly;

"strip", in relation to a unit of a security, means an obligation of the person who issued the security to make a payment, whether of interest or of principal, which has been separated from other obligations of that person to make payments in respect of the unit of the security.

Amendments

1 Substituted by Finance Act 2001 section 77(2) and Schedule 2 para 1.

What is a security "strip"?

(1) These rules apply if you create a strip of a security (Irish government stock and other government and corporate bonds (section 815)). You create a strip when you separate the right to receive the interest payment on the security from the right ...

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(2) Where at any time a person who owns a unit of a security creates strips of that unit-

(a) the unit of the security shall be deemed to have been sold at that time by that person for an amount equal to its market value at that time,

(b) that person shall be deemed to have acquired at that time each strip for the amount which bears the same proportion to the opening value of the unit of the security as the market value of the strip at that time bears to the aggregate of the market value at that time of each of the strips of the unit of the security, and

(c) each strip shall be deemed to be a non-interest-bearing security any profits or gains arising on a disposal or redemption of which shall, subject to subsection (5), be chargeable to tax under Case III of Schedule D unless charged to tax under Case I of that Schedule.

How am I taxed on the disposal of a security strip?

(2) When you create a strip you are deemed to have disposed of the original security at market value....

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(3) Where a person, other than a person carrying on a trade which consists wholly or partly of dealing in securities in respect of which any profits or gains are chargeable to tax under Case I of Schedule D, acquires a strip in respect of a unit of a security referred to in section 607, otherwise than in accordance with subsection (2), the person shall be deemed to have acquired the strip for an amount equal to the lesser of-

(a) the amount which bears the same proportion to the nominal value of the unit of the security as the market value of the strip at the time of issue of the security would have borne to the aggregate of the market value at that time of each of the strips of the unit of the security if the strip had been created at the time of issue of the security, and

(b) the amount paid by the person for the acquisition of the strip.

What is my acquisition cost for a security strip?

(3) If you are not a security dealer, and you acquire or buy a strip, your acquisition cost is deemed to be the lesser of: ...

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(4) Where at any time strips of a unit of a security are reconstituted into a unit of the security by any person-

(a) each of the strips shall be deemed to have been sold at that time by that person for an amount equal to its market value at that time, and

(b) that person shall be deemed to have acquired at that time the unit of the security for an amount equal to the aggregate of the market value at that time of each of the strips.

What happens if I reconstitute a series of strips into the original security?

(4) If you reconstitute a series of strips into the original security, you are regarded as having made a disposal (see (2)) of each constituent strip at market value at that time....

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(5) Where a person holds a strip on a relevant day, that person shall on that day be deemed to have disposed of and immediately reacquired the strip at the market value of the strip on that day.

Is there an annual charge on holding a strip?

(5) To ensure that you are caught for tax on the appreciation in the strip's value, you are deemed to have disposed of the strip and immediately reacquired it at market value on 31 December each year (the relevant day).

(6) Where under subsection (5) a person is deemed to have disposed of a strip on a relevant day, the amount to be included in the profits or gains chargeable to tax under Case III of Schedule D for the chargeable period in which the relevant day falls shall be the aggregate of the amounts of any profits or gains arising on such deemed disposals in the chargeable period after deducting the aggregate of the amounts of any losses arising on such deemed disposals in that chargeable period and, in so far as they have not been allowed as a deduction from profits or gains in any previous chargeable period, any losses arising on such deemed disposals in any previous chargeable period.

What happens if my annual deemed disposal of a strip gives rise to a loss?

(6) If your deemed disposal and reacquisition of a strip (see (5)) produces a loss, you may offset that loss against similar (Schedule D Case III) profits.