These are classed as Deeply Discounted Securities (DDS). ‘Deeply Discounted Securities’ (DDS) are government securities, commercial bonds and loan stock, where the amount paid on redemption is higher than the price at which they were issued.
The difference is the discount and represents the whole or part of the reward to the holder of the security for the use of the money borrowed by the security issuer.
Where certain conditions apply, the tax rules ensure that gains on such securities are taxed as income, rather than as capital gains. (Deeply discounted securities
If you invest in deeply discounted securities, put the difference between what you paid for the bond and what you redeem or sell it for in box 3 of SA101 (page Ai1).