[SAIM2230] SAIM2230 – Interest: specific inclusions: discounts: taxation
Tax treatment of discounted securities
For the purposes of ITTOIA05 all discounts, other than discounts in deeply discounted securities, are treated as interest for tax purposes, ITTOIA05/S381. (Previously, Case III taxed ‘all discounts’.)
But this does not mean that someone who acquires a debt security and later sells or redeems it can simply be taxed on their profit. Such profits can only be charged to income tax if they are income rather than capital: and there is an extensive body of case law dealing with this question.