Taxes Consolidation Act 1997 Schedule 21 paragraph 1

Restricting artificial losses on cum-dividend purchases

Paragraph 1 of Schedule 21 defines the "appropriate amount" of interest used to restrict artificial losses arising when a dealer in securities buys a security cum dividend and sells it ex dividend.

• Where a security dealer buys a security cum dividend and sells it ex dividend, an artificial loss can arise because the purchase price includes accrued interest that is not reflected in the lower ex-dividend selling price.
• Section 749 restricts this artificial loss by treating the purchase price as reduced by the accrued interest element — referred to as the "appropriate amount in respect of the interest".
• Paragraph 1 defines that appropriate amount as the appropriate proportion of the net interest receivable by the first buyer of the security.
• The effect is that the dealer's allowable cost is reduced, thereby eliminating the artificial loss that would otherwise result from the drop in value between cum-dividend purchase and ex-dividend sale.