Tax relief on private company bonds

starblade

Hi,

I have a question about paying tax on private company bonds.

The situation is, last year I bought bonds from my employer which is a small private limited UK company.

I have now been paid the interest and 20% tax has been pre-deducted before I received it, so I've received 80% of the interest.

I have been advised that I can use a R40 form to claim this back.

The problem is that I can't find any resources regarding tax on bond interest specifically from small private limited UK companies.

These are not shares so I'm pretty sure this isn't covered under Divided Allowance.

Would this be treated as income or is there a separate allowance from bond income?

Thanks!

Dazed_and_C0nfused

starblade said:

Hi,

I have a question about paying tax on private company bonds.

The situation is, last year I bought bonds from my employer which is a small private limited UK company.

I have now been paid the interest and 20% tax has been pre-deducted before I received it, so I've received 80% of the interest.

I have been advised that I can use a R40 form to claim this back.

The problem is that I can't find any resources regarding tax on bond interest specifically from small private limited UK companies.

These are not shares so I'm pretty sure this isn't covered under Divided Allowance.

Would this be treated as income or is there a separate allowance from bond income?

Thanks!

There is no allowance for either interest or dividends other than the Personal Allowance.

Depending on your other taxable income it might be that the income will ultimately be taxed at 0%, courtesy of either the savings starter rate band or savings nil rate band (aka Personal Savings Allowance) but I'm not aware of anything that would make this anything other than taxable interest.

An R40 can only be used by someone who isn't required to complete a Self Assessment return for the tax year in question.

wmb194

starblade said:

Hi,

I have a question about paying tax on private company bonds.

The situation is, last year I bought bonds from my employer which is a small private limited UK company.

I have now been paid the interest and 20% tax has been pre-deducted before I received it, so I've received 80% of the interest.

As you wrote, it's classified as interest.

starblade

Dazed_and_C0nfused said:

starblade said:

Hi,

I have a question about paying tax on private company bonds.

The situation is, last year I bought bonds from my employer which is a small private limited UK company.

I have now been paid the interest and 20% tax has been pre-deducted before I received it, so I've received 80% of the interest.

I have been advised that I can use a R40 form to claim this back.

The problem is that I can't find any resources regarding tax on bond interest specifically from small private limited UK companies.

These are not shares so I'm pretty sure this isn't covered under Divided Allowance.

Would this be treated as income or is there a separate allowance from bond income?

Thanks!

Thanks for your reply. I've done some research and I believe the dividend part is incorrect.

"There is no allowance for either interest or dividends other than the Personal Allowance."

For the 23-24 tax year, there is a £1000 dividend allowance. e.g. if you receive £1500 in dividends then £1000 is tax free (the allowance) and the rest is taxed at whatever your circumstances are regarding what tax band you fall into.

From rapidformations.co.uk/blog/dividend-tax-allowance-reduction/

If you receive dividends above the £1,000 allowance (or £500 allowance for 2024/5), there is no change to the amount of tax payable on the dividend income – it will depend on the income tax band you fall into.

Can I ask, where did you see that dividends do not have an allowance?

"An R40 can only be used by someone who isn't required to complete a Self Assessment return for the tax year in question."

I'm employed and not self employed so I believe that the R40 form would apply to myself.

Do you have any links that confirm that these is no allowance on bond income?

starblade

Found the answer in the Income tax on bonds section below:

Income from bonds held outside an ISA, SIPP, or other tax-free wrapper is subject to income tax. Interest payments from gilts are also subject to income tax. This applies if you make any income, regardless of whether the bond was bought directly from a company or via bond funds.

ii.co.uk/bonds/tax-rules-for-bonds-and-gilts

Dazed_and_C0nfused

starblade said:

Dazed_and_C0nfused said:

starblade said:

Hi,

I have a question about paying tax on private company bonds.

The situation is, last year I bought bonds from my employer which is a small private limited UK company.

I have now been paid the interest and 20% tax has been pre-deducted before I received it, so I've received 80% of the interest.

I have been advised that I can use a R40 form to claim this back.

The problem is that I can't find any resources regarding tax on bond interest specifically from small private limited UK companies.

These are not shares so I'm pretty sure this isn't covered under Divided Allowance.

Would this be treated as income or is there a separate allowance from bond income?

Thanks!

Thanks for your reply. I've done some research and I believe the dividend part is incorrect.

"There is no allowance for either interest or dividends other than the Personal Allowance."

For the 23-24 tax year, there is a £1000 dividend allowance. e.g. if you receive £1500 in dividends then £1000 is tax free (the allowance) and the rest is taxed at whatever your circumstances are regarding what tax band you fall into.

From rapidformations.co.uk/blog/dividend-tax-allowance-reduction/

If you receive dividends above the £1,000 allowance (or £500 allowance for 2024/5), there is no change to the amount of tax payable on the dividend income – it will depend on the income tax band you fall into.

Can I ask, where did you see that dividends do not have an allowance?

"An R40 can only be used by someone who isn't required to complete a Self Assessment return for the tax year in question."

I'm employed and not self employed so I believe that the R40 form would apply to myself.

Do you have any links that confirm that these is no allowance on bond income?

Firstly Self Assessment isn't just for the self employed.  It's for people who need to complete an annual tax return.  

Some of whom will be self employed but lots won't be.

If you have no reason to complete a return then you can use an R40 but it is one or the other so someone completing a Self Assessment return cannot use an R40.

The so called dividend "allowance" is actually a 0% tax band, not an allowance like the Personal Allowance is.  Dividends in an ISA or pension are "tax free", other dividends wil be taxable income.  

It makes no difference to most people but it does mean that as it's still taxable income it forms part of your "adjusted net income".  Which is important for things like HICBC, Married Couple's Allowance and tapered Personal Allowance.

That explanation is poor, LITRG explain it better here,

https://www.litrg.org.uk/tax-guides/savers-property-owners-and-other-tax-issues/savings-and-tax#toc-what-is-a-dividend-

I honestly don't know what you mean by "bond income" 🤔.  Hasn't the payer explained what the income is?  Until you know that you won't be able to complete the R40.

What has changed your opinion since you wrote this in your op????

I have now been paid the interest

xylophone

I have now been paid the interest and 20% tax has been pre-deducted before I received it, so I've received 80% of the interest.

Presumably the documentation received from the issuer of the bond shows that you have received an interest payment.

Tax has been deducted  automatically at standard rate, just as it used to be by banks and building societies unless the recipient had completed the necessary documentation for HMRC.

The point is that interest is taxable income and is added to your other income to determine the rate at which you pay tax.

See

https://www.gov.uk/apply-tax-free-interest-on-savings

It may or may not be the case that you can reclaim the interest deducted on the bonds.