Unless otherwise stated, relevant legislation is from CTA 2009.
A. Gilt-edged securities (gilts) are defined at s476 which in turns relies on definition from TCGA 1992, Schedule 9, Part 1 as stocks or bonds issued by the UK government with a list of gilts at Part 2. Majority of gilts pay a fixed coupon (generally twice a year) and mature at a fixed date. Gilts also have the advantage of being fully guaranteed by the Government compared to only the first £85,000 of bank savings per institution reimbursed under the financial services compensation scheme making them popular low-risk investment. As tax advisors, we must be careful in the advice provided on particular investments as this may stray into investment advice requiring authorisation by the Financial Conduct Authority.
While you mention gilts are exempt for individuals; for companies, gilts potentially fall within the capital gains and loan relationship regimes. Fundamentally a loan to the Government with the company standing in the position of a debtor (to the Government) and the debt arising from the transaction of lending money satisfying s302 (1). While the exemption for gilts and qualifying corporate bonds (QCBs) of TCGA 1992, s115 is still applicable, where the loan relationship rules are in point, those take priority, s464. There are two parts to consider taxing under the loan relationship rules:
1. Coupon interest – taxable as normal.
2. Revaluation – subject to applicable GAAP used by the company, revaluation of a loan relationship can create non-trade debits or credits.
Legislation does provide some special treatment for indexed gilts, s399 to s405 that the increase in value of the gilt solely linked to RPI movement is excluded i.e., profit arising other than for RPI movement remains chargeable. There is also a useful example from HMRC at CFM37140. While a beneficial tax treatment, indexed gilts offer a much lower coupon rate along with potential additional compliance burden as s399 prescribes fair value accounting for index linked gilts must be used in contrasts with general GAAP of s313 (1).
While brief in technical detail, there is also a useful summary from the Debt Management Office here briefly touching on taxation of gilts in companies.
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