US Treasury Bond gain treatment

Joining this thread: can you confirm that the definition of deeply discounted securities, as defined in SAIM3020 refers ONLY to the issue price of the securities and NOT where the price in the scondary market is significantly below the redemption price. For example if a 5yr bond with a coupon of 2% was issued in 2021 at 99.925 or 100 but is now trading at 91 because of the change if underlying rates, this is not considered to be a deeply discounted security?

Hi SID3673 James,
Please refer to:
SAIM3010 - Deeply discounted securities: introduction
Thank you. 

Thank you Admin 25 but this doesn't really answer my question as it just directs me to some more reading material that says the same thing. I am looking for confirmation that my interpretation of what is written is correct as it isn't prescriptive. Please advise.

Hi,

We can only provide general advice in this forum. We have referred you to the guidance that covers deeply discounted securities, so that you can make an informed decision. If you are still unsure, you will need to contact our self assessment team using the below link or seek professional advice.

Self Assessment: general enquiries

Thank you.

That is very helpful Admin 32.

Hello, 1. For the investment in US Treasury Bonds/ Bills which were held to maturity, I have received counpon interests of the US Treasurey Bond/Bill. Should these counpon interests be reported as interests and other income from overseas savings in SA 106? 2. For the inveatment in US Treasury Bonds/Bills which were held to maturity ( the same Bonds/ Bills as mentioned in 1) , I have calculated the gain/loss for these inveatment in US Treasury Bonds/Bills as the difference between the purchase and redemption price (at maturity) after each had been converted to sterling. The calculated result is a loss (negative). How do I report this loss ? in which form (SA106? , SA 108?) Thank you.

Hi,

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. Losses cannot be deducted. 

SAIM3010 - Deeply discounted securities: introduction

Thank you.

A follow up question on purchase cost matching for income computation - if I purchase the T-bills in batches at different time, for example: 100 units at £95 on 1 June 2022 100 units at £97 on 1 September 2023 If I dispose 100 units (half of my holding) on 1 January 2024 (4 months from purchase), what cost should I use (average at £96 / FIFO at £95 / LIFO at £97)?

Hi,
A Deeply Discounted Security (DDS), such as a US Treasury Bond (T- bill) would normally be subject to UK income tax on maturity, like a chargeable event gain, unless it is redeemed or sold before maturity, then the transaction may be subject to capital gains tax (CGT).  
Please therefore refer to SAIM3010 - Deeply discounted securities: introduction  onwards & CG54600 - Deep discount securities: introduction  onwards as you will need to determine whether the charge will fall under income tax or CGT in the first instance.
You may wish to seek independent financial advice if you are unsure which type of bonds you have.
Thankyou.

Wow. So after posting this initially, that a DDS would be subject to CGT rather than income tax if sold before maturity, then all other responses from HMRC admins in response to this stating the opposite and contradicting the initial statement (as well as the documentation stating the opposite), you are now back to making the same statement. Which is it? If a T-bill is classed as a DDS, then if sold before maturity is it subject to CGT or income tax? This should be a simple yes or no question.

Hi Ch330,
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.
SAIM3010 - Deeply discounted securities: introduction
Thank you. 

I think there's a bit of confusion here about the nature of certain types of US Treasury bonds. There are two kinds of fixed return US Treasury securities: short term bonds, called "T-Bills" that are typically issued with 18 months or shorter maturities, with *no* cash interest bearing coupon and are typically sold at a discount to the redemption value exceeding 0.5% per annum (ie all of the return to the holder comes from this issuance discount). These are, as I now understand it, classed as Deeply Discounted Securities by HMRC, and all of the Sterling gains would be taxable as income, and losses would be non deductible. There is however a second type of US Treasury: longer dated bonds (usually referred to a "Treasury Bonds" or "Treasury Notes"), which are sold with a (market determined) annual cash interest coupon payment, and an issuance price at or very near the redemption value (ie the annualised difference between the issuance price and redemption value is *less* than 0.5%). Given this: am I correct in thinking that for these kinds of Treasury Bonds, UK taxpayers need to pay Income tax on the cash interest payments, but capital gains tax on any Sterling difference between their purchase and sale prices (and losses on the difference between their purchase and sale prices in sterling would be deductible)? Thank you

Hi jaw54

As a Deeply Discounted Security (DDS), normally a US Treasury bond would be subject to Income Tax on maturity for UK taxation purposes.
However, if redeemed or sold before maturity would be subject to CGT, therefore, CG liability or loss may arise.
Pleease see CG54602 - Deep discount securities: CGT adjustment - HMRC internal manual - GOV.UK CG54602 - Deep discount securities: CGT adjustment
Therefore, any gain would be entered onto shares and securities area of CG schedule. If double taxation applies any relief would be claimed on the Foreign schedule, CG area.

Thank you
 

Hi All, There seems to be confusion on this thread, as there are 3 different types of US bonds: T-Bills, T-Notes and T-Bonds. I believed that only T-Bills are classed as DDS' as they are issued at a discount, Notes and Bonds, are traditional bonds, so any gain is treated as a gain, the coupon is income. but all the gain on a T-Bill is Income. Can anyone confirm this thanks?

Hi,
All US government bonds are treated as deeply discounted securities.
If they are not government bonds, then they are treated the same way as normal bonds and taxable as .
Thank you.