Is Maturity of Corporate Bond a Chargeable Event, for Capital Gains?

Economme

Hi,

Is Maturity of Corporate Bond a Chargeable Event, for Capital Gains?

NB.

I asked this question on the 'HMRC Community Forum' and after a 10 day delay, I was privately advised:

"Unfortunately, your post has been declined. HMRC is unable to provide specific or tailored advice through the Online Community Forums and cannot comment on any form of calculation, example or scenario as we may not be in possession of all the relevant information.

 The HMRC Customer Forum is for general queries only and is intended to help our customers self-serve. We are unable to provide financial advice or further interpretation of the guidance provided on GOV.UK: Capital Gains Tax: detailed information - GOV.UK

(link stopped by MSE)

 

Customers with more complex enquiries often engage the services of a professional advisor or accountant and this may be something you wish to consider.

Please note this mailbox is not monitored and responses will not be read.

 Kind regards

HMRC Admin."

This kind of shocked me, as I thought I had asked a general, commonly occurring question 

ie. of the many people who buy corporate bonds, and are advised that sale or transfer of a bond is a normally considered a chargeable event, why would the HMRC not give any guidance on what to do at Maturity date?

Anyway, does anybody on MSE have an insights on the question?, or could advise on how to get tax advice, at a cost proportionate to a ~£2000 Loss.

fyi-Full text of the HMRC Community Forum question, copied below

Thanks and regards.

HMRC Community Forum question:

-----------------------------------------

Is Maturity of Corporate Bond a Chargeable Event, for Capital Gains?

Hi, If a Corporate Bond (eg. HSBC Bank plc) is purchased, through a UK Investment Broker, and is held to Maturity, is Maturity a Chargeable Event, for Capital Gains purposes? (Gain or Loss)

I have looked at:

- HMRC advice, eg. Capital Gains Tax summary notes, SA108 Notes 2023–24

- Internet, eg this forum; other published tax advice

and I have not been able to find anything clear and definitive on: Corporate Bonds; and Maturity.

- The bond is not held in an ISA or PEP

- I do not believe it is a Qualifying Corporate Bond

Thank you for any guidance or help.

-----------------------------------------

poseidon1

Economme said:

Hi,

Is Maturity of Corporate Bond a Chargeable Event, for Capital Gains?

NB.

I asked this question on the 'HMRC Community Forum' and after a 10 day delay, I was privately advised:

"Unfortunately, your post has been declined. HMRC is unable to provide specific or tailored advice through the Online Community Forums and cannot comment on any form of calculation, example or scenario as we may not be in possession of all the relevant information.

 The HMRC Customer Forum is for general queries only and is intended to help our customers self-serve. We are unable to provide financial advice or further interpretation of the guidance provided on GOV.UK: Capital Gains Tax: detailed information - GOV.UK

(link stopped by MSE)

 

Customers with more complex enquiries often engage the services of a professional advisor or accountant and this may be something you wish to consider.

Please note this mailbox is not monitored and responses will not be read.

 Kind regards

HMRC Admin."

This kind of shocked me, as I thought I had asked a general, commonly occurring question 

ie. of the many people who buy corporate bonds, and are advised that sale or transfer of a bond is a normally considered a chargeable event, why would the HMRC not give any guidance on what to do at Maturity date?

Anyway, does anybody on MSE have an insights on the question?, or could advise on how to get tax advice, at a cost proportionate to a ~£2000 Loss.

fyi-Full text of the HMRC Community Forum question, copied below

Thanks and regards.

HMRC Community Forum question:

-----------------------------------------

Is Maturity of Corporate Bond a Chargeable Event, for Capital Gains?

Hi, If a Corporate Bond (eg. HSBC Bank plc) is purchased, through a UK Investment Broker, and is held to Maturity, is Maturity a Chargeable Event, for Capital Gains purposes? (Gain or Loss)

I have looked at:

- HMRC advice, eg. Capital Gains Tax summary notes, SA108 Notes 2023–24

- Internet, eg this forum; other published tax advice

and I have not been able to find anything clear and definitive on: Corporate Bonds; and Maturity.

- The bond is not held in an ISA or PEP

- I do not believe it is a Qualifying Corporate Bond

Thank you for any guidance or help.

-----------------------------------------

To resolve your question quickly what was the name ( or ticker) of your bond? As pointed out by More_complicated_than_that , most corporate bonds listed on the LSE are QCBs ( qualifying corporate bonds ) so are are cgt exempt whether held to maturity or sold prior to   ( I have bought and sold loads over the years).

However, it is just possible you may have acquired  a deeply discounted security (DDS ) which are liable to tax on maturity, albeit income tax ( not cgt). 

So give us a name please.

Economme

Hi Poseidon1

Bond was: HSBC, 6.5% 7jul2023, GBP (XS0088317853)

Is there somewhere I can check if a bond is a QCB?

Thanks you for your quick response, and any guidance you can provide.

poseidon1

[Deleted User] said:

Economme said:

Hi Poseidon1

Bond was: HSBC, 6.5% 7jul2023, GBP (XS0088317853)

Is there somewhere I can check if a bond is a QCB?

Thanks you for your quick response, and any guidance you can provide.

Those bonds were issued in 1998 and 2000 and so there is unlikely to be a prospectus online (and its not on the HSBC website with the rest of the prospectuses).  It looks like it is treated as part of HSBC's Tier 2 capital and, if that is right, it would be quite unlikely to be a QCB.  The issue is that a bond that is treated as Tier 2 capital can lose its value if things go bad.  How it does that will be set out in the prospectus (e.g. the principal of the loan will be written down).

So I've changed my mind and would suggest its a non-qualifying corporate bond and so you will be taxed on income and be able to claim a capital loss.  It has nothing to do with the chargeable events legislation.

Oh, don't rely on stuff written by random people on the internet.

Sadly looks as if I have to concur with your findings. Does indeed look as as if this particular bond was a part of HSBC 's Tier 2 ladder of subordinated bonds that were lower tier  debt instruments that could have been wiped out if indeed things deteriorated badly at the bank.

However, from what I can see the bank called these in 2022 ( presumably at par), so the OP's taxable disposal would appear to be 2022 /23 at the latest.

Incidentally, as to whether there was an easy way for the OP to have discovered all this himself, I have not found any central source material ( other than access to original prospectus where available) where one can easily determine these things. 

Both my investment platforms   ( HL and ii  ) consider corporate bonds to be complex investments requiring a short questionnaire to be passed before permitting investment therein. I suspect the OP's conundrum here is an example of such complexity.

For the benefit of the OP and others, a short article on the appeal of QCBs appears below although it does not cover how to recognise when a bond is not a QCB - so a potential trap for the unwary.

https://www.londonandcapital.com/news-insights/fixed-income-vs-cash-the-after-tax-effect/

Economme

Thanks given to you both, for guiding this grasshopper.

I will look further in to the points that you have raised, especially, making sure to save a personal/local copy of the prospectus, and any available documentation relating to a bond (overly reliance on online sources).

With respect to HMRC guidance, it feels like it would be helpful for the HMRC to have some guidance wrt 'Maturing bonds', summarizing something similar to your posts on this issue

Kudos and best regards

mybestattempt

Economme said:

With respect to HMRC guidance, it feels like it would be helpful for the HMRC to have some guidance wrt 'Maturing bonds', summarizing something similar to your posts on this issue

The HMRC guidance in both their Capital Gains Manual and Savings and Investments Manual provides information about the tax position for QCBs and DDS:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg50200c

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual

I entered 'maturing bonds' into the search facility in both manuals and got several hits.