Taxation on gilts owned by company

My business retains a significant portion of earnings to pay dividends and to corporation tax. Currently these funds are held in savings accounts, the interest reported and taxed. I understand that if an INDIVIDUAL purchases Gilts that the coupon is taxable however the capital gain (difference between purchase and maturity) is tax free. I have had difficulty finding information for a COMPANY purchasing gilts. The DMO (https://web.archive.org/web/20240813114914/https://www.dmo.gov.uk/responsibilities/gilt-market/buying-selling/taxation/) appears to indicate that gilts are treated as a loan relationship and that the total return (coupon and gain on maturity) would be taxable. However CFM37100 appears to carve-out gilts as a special case and specifies that "All gilts are wholly exempt from chargeable gains". Please clarify the tax treatment of gilts held by a company, including two scenarios: 1) Gilts held to maturity 2) Gilts sold before maturity

Hi ,
 

Capital gains attributable to any rise in the value of the gilts is only due on any excess gain over and above the annual RPI rate incrtease.  Any gain attributable to changes in value due solely to RPI are not liable to Capital gains, see CGM37140   for more information Tax  . Thank you .

Assuming that you're referring to CFM37140 that is only applicable to index-linked gilts, not conventional gilts. - CFM37120, CFM37130 and CFM37140 address index-linked gilts. - CFM37150 and CFM37160 addresses gilt strips - CFM37170 addresses specific FOTRA and '3½% War Loan Or After' gilts Conventional gilts are only addressed in CFM37110, which says "All gilts are wholly exempt from chargeable gains" This appears to be clear in TCGA92/S115 and I also found this explanatory note: https://www.legislation.gov.uk/uksi/2022/754/made "Section 115 of the Taxation of Chargeable Gains Act 1992 (“TGCA”) provides that gains on the disposal of “gilt-edged securities” are not chargeable gains. They are not therefore subject to capital gains tax (or, for companies, corporation tax)." Given the above, it appears to me that disposal of a gilt (either through sale or holding to maturity) is not subject to corporation tax. However that the coupon payment (eg interest received on the loan) would be taxable. Please confirm or direct to relevant manual/legislation.

Hi,
I have reviewed the relevant sections of the TCGA and our guidance and I apologise for my misunderstanding of your original query.
Non qualifying corporate bonds are liable to CGT, and I was focussing on those.
You are perfectly correct that conventional gilts would not be chargeable for CGT.
Thank you

It may be useful to also direct VosFraG to the Loan Relationship legislation at Part 5 CTA 2009, which determines the corporation tax treatment of holdings of gilts: they are taxed essentially in line with the accounting result, including accounting credits representing gains.

Hello everyone, what's not clear to me is the following: If a company buys an inflation linked bond at price below 100 assuming 0% inflation until maturity and ) 0% coupon for the sake of the example, the company will make a profit of 100-PurchasingPrice at maturity. That capital gain which is NON taxable in Gilts (as per above comments) IS instead taxable for “gilt-edged securities” ?

Hi uancw,
Please refer to CFM37130:
CFM37130 - Loan relationships: special types of security: gilt-edged securities: taxing indexed gilts
Any movements in the carrying value of an index-linked gilt-edged security are exempt from tax only to the extent that the movement relates to changes in the RPI.
This means that profit arising other than from RPI movement remains chargeable to tax.
Thank you.