Bond Investment - Foreign Corporate Bond, Government Bonds

I purchased a bond below par (i.e. below the redeem value at maturity). When the bond is matured, redeemed or called at a higher price than my purchase price. Does this count as capital gain(or loss if I paid above par) or if is it taxable at all? And when bond was restructured and/or got tender offered, there is sometime a consent fee/incentive offered. Is this consent fee taxable? If so, should it be income or capital gains?

Hi,

If this is a bond from America, then US government bonds, sometimes known as T-bills or treasury bills are generally taxed as income rather than capital gains. The return is paid at maturity rather than regular interest payments. In the UK, these are known as deeply discounted securities, with the discount being the difference between the price at which they were issued and the price received at maturity.  

On a foreign investment, the income is the difference between the purchase and redemption price after each has been converted to sterling on the day the transactions took place, so includes any foreign exchange gains. Any losses cannot be deducted. You can see guidance here:

SAIM3010 - Deeply discounted securities: introduction

Thank you.

Hello, The bond concerned are foreign corporate bonds. And they are not issued below par, they just traded lower than the issued price, so I don't think they count as deeply discounted securities. If in such case, the difference between purchase and redemption price will be taxed as capital gains, right? And for the consent fee/incentive offered when there is restructuring of the bond terms, are these taxable? If so, should it be capital gains or income?

Hi nelk24,
Government bonds (gilts) are exempt from Capital Gains Tax.
They are taxed as Income Tax.
For the foreign bonds, please refer to:
IFM13356 - Offshore Funds: participants in offshore funds: participants within the charge to income tax: income and distributions from non-reporting funds: non-transparent funds
Thank you. 

Hi Team, I invested in foreign corporate bond directly, not via some ETF, unit trust or offshore fund. Could you address my questions directly? 1) if I purchased the bond below its issued price (not issued below par i.e. this is not a deeply discounted securities), and it is redeemed/called at a higher than purchase price. This should count as capital gain, right? (and as a capital loss if purchased above the issued price) 2) If there is any consent fee/incentive fee for a restructuring of the bond terms, are these taxable under UK taxation system?

Hi  nelk24

Please refer to guidance at HS265 Offshore funds

Thanks

Hi Team, I invested in the bond directly NOT through offshore funds. I just want to know if there is consent fee/incentive fee for a foreign corporate bond restructuring, is that taxable under UK taxation system And if the bond was sold or matured to a higher price than the purchase price, it will be treated as capital gain, right? Please stop refer me to the guidance at HS265 Offshore funds as I restate that I invested into the corporate bonds not the offshore funds

Hi
This forum is for general queries only and is intended to help you self-serve. We are unable to provide specific advice tailored to individual circumstances.
 

Dear HMRC Admin, I think this is a very important question that should be addressed. So I was wondering about the same issue. Consider the following example, which should be straightforward to explain the tax involved. Suppose I had bought a corporate bond from a European company that was initially issued at €100 per bond in 2020 and will be redeemed at maturity in 2030 at €100 per bond. Due to rising interest rates, the price of the bond fell and in 2023 it was trading at 90 euros per bond, which is the price at which I would have bought the bond. I receive 3% interest each year. As I understand it, the taxes would be as follows - Income tax on the 3% annual interest. - Capital gains on the €10 difference between the price at maturity (€100) and the price at which I bought the bond (€90). Could you confirm my understanding? Or what taxes would be incurred in the above example? I believe this example would be helpful to understand bond taxation in general and help the community. Thanks in advance!

Hi ,
 

We can only provide general information / guidance in this forum.  For an answer to a detailed question of this nature, you would need to contact our self assesment helpline on 0300 200 3310, contact our webchat facility at :  Contact HMRC    or seek professional advice  . Thank you .