Bonds are a kind of loan through which governments or companies raise money.
If you buy a bond:
- you are technically lending money to the bond issuer
- they are obliged to pay you back interest (the bond “coupon”), or the value of the bond (also called the “principal”) at a later date (“the maturity”).
You might need to pay taxes on profits from bonds:
- if you earned a coupon from a bond, that income is taxed as income from savings interest
- if you sell a government bond (also called “a gilt”) for a profit, that profit is tax-free
- earnings from bonds held in an ISA are also completely tax-free
- if you sell a corporate bond, that profit is tax-free only if it’s a “qualifying corporate bond” (QCB). Otherwise you might need to declare and pay Capital Gains Tax (CGT).