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Tax treatment of US treasuries - accrued interest

Gilts, bonds, and interest-bearing shares
drb01
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Tax treatment of US treasuries - accrued interest

#116376

Postby drb01 » February 7th, 2018, 3:34 pm

Hi - does anyone know about the UK tax treatment of US treasuries. My basic understanding is:

- The difference between the redemption/sale proceeds (converted to GBP at the FX at the time of sale), less the purchase cost (converted to GBP at the FX at the time of purchase) represents a capital gain/loss subject to CGT

) The coupon income, converted to GBP at the time of receipt, is subject to income tax


But what about accrued interest at the time of purchase and/or sale? My guess is the following:

- the accrued interest on purchase is deducted from the first coupon receipt (i.e. similar to Gilts)

- the accrued interest on purchase is deducted from the purchase cost to calculate CGT (like unit trust equalisation)

- the accrued interest on sale is taxed as income

- the accrued interest on sale is deducted from the sale proceeds to calculate CGT

- all these amounts are converted to GBP at the time of receipt/payment

This would seem logical, if not ridiculously complicated!

GoSeigen
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Re: Tax treatment of US treasuries - accrued interest

#116434

Postby GoSeigen » February 7th, 2018, 7:30 pm

drb01 wrote:Hi - does anyone know about the UK tax treatment of US treasuries. My basic understanding is:

- The difference between the redemption/sale proceeds (converted to GBP at the FX at the time of sale), less the purchase cost (converted to GBP at the FX at the time of purchase) represents a capital gain/loss subject to CGT

) The coupon income, converted to GBP at the time of receipt, is subject to income tax


But what about accrued interest at the time of purchase and/or sale? My guess is the following:

- the accrued interest on purchase is deducted from the first coupon receipt (i.e. similar to Gilts)

- the accrued interest on purchase is deducted from the purchase cost to calculate CGT (like unit trust equalisation)

- the accrued interest on sale is taxed as income

- the accrued interest on sale is deducted from the sale proceeds to calculate CGT

- all these amounts are converted to GBP at the time of receipt/payment

This would seem logical, if not ridiculously complicated!


There is no CGT to pay at all.

Accrued interest is accounted for in the same way as gilts i.e. subject to the Accrued Income Scheme (AIS). In brief the effect of the AIS is to remove your liability to income tax on any part of the first coupon which was accrued before your purchase; and similarly on disposal it makes you liable for the tax on the part of the next coupon payment after disposal which was accrued before you sold.

All the above assumes the usual UK tax residency.

GS

greygymsock
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Re: Tax treatment of US treasuries - accrued interest

#116505

Postby greygymsock » February 8th, 2018, 1:40 am

GoSeigen wrote:There is no CGT to pay at all.


why not?

there are exemptions from CGT for gilts and for qualifying corporate bonds (QCBs). US treasuries are neither. (one of the qualifications to be a QCB is that it is expressed in sterling.)

GoSeigen
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Re: Tax treatment of US treasuries - accrued interest

#116781

Postby GoSeigen » February 8th, 2018, 11:02 pm

greygymsock wrote:
GoSeigen wrote:There is no CGT to pay at all.


why not?

there are exemptions from CGT for gilts and for qualifying corporate bonds (QCBs). US treasuries are neither. (one of the qualifications to be a QCB is that it is expressed in sterling.)


So sorry, greygymsock is quite right.

I've only ever held foreign currency bonds in ISAs so got a bit mixed up! I'll leave it to the experts to comment on the detail.


GS


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