Balance income on US bonds maturity

Dear HMRC, I hold US Gov bonds and get pa value when after it come to maturity, may I ask if the gains/lost balance to my assests cost should be classified as CGT income/lost or others? For example: Cost of bonds A: 8K Maturity return:10K Should the 2k income are classified as capatial gains or interest income? Thx

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. You can see more information here:

SAIM3010 - Deeply discounted securities: introduction

Thank you.

Dear HMRC, So, If I sold it before maturity for the DDS, the income should also fall into the "interst income" instead of "capital gains". Am I correct? And,may I ask if I sell a non-DDS like Corp-bonds/30 year US treasury bonds, would the gains are being classifed as capital gain? Thx

Hi terrywykwong,
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. 
Have a look at Savings and Investment Manual SAIM3010 - Deeply discounted securities: introduction for more information.
Thank you.


 

Dear HMRC, I refer to your reply above,{on a foreign investment the "income" is the difference between the purchase and redemption price", The US-Coperate Bonds (foreign investment), the gains would be subjected to income tax intead of CGT. Am I correct? Thanks

Hi,

Correct, US government bonds, sometimes known as T-bills or treasury bills are generally taxed as income rather than capital gains.

Thank you.

Dear HMRC, Q1,Further Question on US-Coperate Bonds (foreign investment), dose the cost(commission) of purchase and dispose of the bonds are being treated as allowable cost to offset the gains? Q2, If the disposal of the bonds generate losses, the losses can't be deducted the gains of the income tax(from other soruce) to caculate the total taxable income. Am I correct? Thx

Hi terrywykwong

Allowable costs are the acquisition and disposal costs.  Loss relief on deeply discounted securities was largely abolished on 27/03/23, as explained at SAIM3080 - please see link below.
There is an exception to this rule for government securities and there is also a special rule that relates to securities held before the above date.
SAIM3080 - Deeply discounted securities: taxation: losses

Thank you

Dear HMRC, Does the "allowable costs are the acquisition and disposal costs" include "incidental costs of acquisition and disposal"? Thx

Hi terrywykwong,
Yes, it does.
Thank you. 

Dear HMRC, For On a foreign investment, May I ask where I should report HMRC for dealing with DDS investment(US bonds) and which boxes I should input? Profit on redemption or sale>> SA106> Coupon recieved>>SA106> allowable costs are the acquisition and disposal costs>SA106>Box? thx.

Hi terrywykwong,
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.  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).  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1148611/SA101_2023.pdf.
Thank you.

Dear HMRC, Refer to reply form "HMRC Admin 21" , DDS inestment should report to Box3 SA101 Ai1, Q1. May I ask what format I can refer to so that I can prepare the attactment? Q2, The coupon recieved from DDS should also report to box 3 of SA101 (page Ai1) or to SA106? please advice. Q3. The allowable costs are the acquisition and disposal costs should also reflect to box 3 of SA101 (page Ai1) attachment as "HMRC Admin 5" reply this cost can offset the incom. Am I correct? Thank you

Hi,

The difference between what you paid for the bond and what you redeem or sell it for, in box 3, page Ai1 on SA101 for UK gains. This will bring the income into the tax calcuation.  

On a foreign DDS 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. This is declared in box 41 page F6 of SA106.  

If you paid foreign tax on the deeply discounted securities, then a foreign tax credit can be claimed in SA106, to avoid double taxation of the gain.

Thank you.