What is the accrued income scheme?
Answered 11 March 2026
Here is a comprehensive explanation of the Accrued Income Scheme (AIS):
The Accrued Income Scheme
What the law says
The Accrued Income Scheme is a free-standing income tax charge on the transfer of interest-bearing securities. It is found in Part 12 of the Income Tax Act 2007 (ITA07/S615 to S681).
- The charge: Income tax is charged on "accrued income profits".
- Amount charged: Tax is charged on the full amount of accrued income profits treated as made in the tax year.
- Person liable: The person liable is the person treated as making the accrued income profits.
- Losses: Accrued income losses are set against the interest from the security on which the loss is made, rather than against other accrued income profits.
- Excluded persons: Pension scheme trustees are excluded transferors and transferees under ITA07/S646.
HMRC guidance / practice
Purpose and background
Prior to the AIS, accrued interest included in the sale price of interest-bearing securities was not taxable as income. This gave rise to a form of avoidance known as "bondwashing" or "dividend stripping", in which income was converted into capital gains. The AIS was introduced on 28 February 1986 to tackle this by taxing accrued interest on the transfer of securities as income.
How it works
The AIS changes the basis on which interest accrued up to the date of sale of most marketable securities is taxed — instead of forming part of the sale proceeds or purchase price charged to Capital Gains Tax, it is treated as income.
The scheme ensures that the buyer and seller are each chargeable on the interest relating to their period of ownership, identifying taxable amounts by a system of profits and losses reliefs.
Scope
- Applies to all interest-bearing securities (e.g. government or corporate bonds) except excluded securities.
- Does not apply to: shares (ordinary or preference), National Savings certificates, or certificates of deposit.
- Does not apply to companies chargeable to corporation tax (from 1 April 1996 onwards, companies fall within the loan relationships rules in CTA 2009) — the AIS guidance therefore applies only to non-corporate taxpayers such as individuals and trusts.
Triggering event
The scheme is triggered by a transfer. The most common type is a sale, but it also includes exchanges, gifts, and other events deemed to be transfers. Notably, the vesting of securities in personal representatives on death is not a transfer for AIS purposes.
CGT interaction
Because accrued interest is treated as income under the AIS, corresponding adjustments are made for Capital Gains Tax: the transferor's disposal proceeds are reduced by the deemed accrued income sum, and the transferee's acquisition cost is similarly reduced by the amount of the relief.
Trustees
Trustees must make the necessary AIS calculations and are chargeable at the trust rate on any accrued income charges.
Citation sources
A charge under the Accrued Income Scheme is treated the same as actual income to which the rules apply. Trustees must make the necessary Accrued Income Scheme calculations. They are chargeable at the trust rate on any accrued income charges.
The Accrued Income Scheme changes the basis on which interest which has accrued up to the date of sale of most marketable securities is taxed. Instead of forming part of the sale proceeds or purchase price charged to Capital Gains Tax it is now treated as income. Full guidance can be found at SAIM4000. The special rules of TCGA92/S119 apply to the Capital Gains Tax treatment of disposals and acquisitions of securities within the scope of the Accrued Income Scheme. Their broad aim is to adjust th
Part 12 Accrued income profits Chapter 2 Accrued income profits and losses Charge to tax Charge to tax on accrued income profits 616 Income tax is charged on accrued income profits.
If the securities are transferred with accrued interest or `cum div’ the transferee will receive the next interest payment. ITA07/S632 treats the transferor as having received a sum equal to the accrued interest. The transferee will have paid the transferor for the accrued interest either in the price of the security or as a separately characterised amount. ITA07/S632 gives the transferee relief for this sum. See SAIM4140+ for guidance on how the Accrued Income Scheme treats these deemed sums an
When an individual dies, securities in the deceased’s estate automatically vest in the deceased’s personal representatives. This vesting is not a transfer for the purposes of the accrued income scheme. Where an individual who holds securities dies and the personal representatives transfer the securities to a legatee, in the interest period in which the individual died, ITA07/S636 (2) disapplies the rules which treat a payment as made. Neither the personal representatives nor the legatee are trea
The Accrued Income Scheme applies to the transfer of securities. ‘Securities’ means holdings of British government securities, company loan stock or similar. The scheme ensures that the buyer and seller are each chargeable on the interest relating to their period of ownership. The scheme identifies the taxable amounts (equivalent to the interest) by a system of profits and losses reliefs. Taxable amounts are regarded as income. SAIM4040 explains which securities are within the scheme, and which
Prior to the introduction of the Accrued Income Scheme (AIS), accrued interest included in the sale price of interest-bearing securities was not taxable as income. See Wigmore v Thomas Summerson and Sons Ltd (9TC577) and SAIM2250. This gave rise to a form of avoidance known as ‘bondwashing’ or ‘dividend stripping’, in which income was converted into capital gains. The AIS was introduced on 28 February 1986, and tackled the problem by taxing accrued interest on the transfer of securities as incom
Part 12 Accrued income profits Chapter 2 Accrued income profits and losses Charge to tax Income charged 617 1 Tax is charged under this Chapter on the full amount of the accrued income profits treated as made in the tax year. 2 Accrued income profits within section 628(5) (profits treated as made where the settlement day falls within an interest period) are treated as made in the tax year in which the last day of the interest period in which the profits are treated as made falls. 3 Accrued incom
Part 12 Accrued income profits Chapter 2 Accrued income profits and losses Excluded transferors and transferees Pension scheme trustees 646 A person is— a an excluded transferor in relation to a transfer of securities by the person, and b an excluded transferee in relation to a transfer of securities to the person, if, were the person to become entitled to interest on the securities, exemption in respect of it would be allowable under section 186 of FA 2004 (exemption for income from investments
The Accrued Income Scheme legislation is a free-standing income tax charge on the transfer of interest-bearing securities, and is not part of the charge on savings and investment income in Part 4 of ITTOIA05. It was formerly to be found at sections 710 to 728 of ICTA88, and was rewritten in the Income Tax Act 2007, where it is now to be found in Part 12 (ITA07/S615 to S681). For tax years before 2005-06, tax on AIS amounts was charged under Case VI of Schedule D. Chapter 1 introduces the charge