Bond Coupons Tax Treatment

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SpatenMan

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Coupons payments on bond holdings.......Will they hit my current account gross or net of tax? As a higher rate tax payer will I have to pay extra?

Also if I buy bonds at a price of 93cents in the euro, will I need to pay capital gains tax? And in what year ..the year of purchase or the year of maturity?

Thanks.
 
Coupon payments will have to be declared for income tax (Form 11, I think) - you may be paying some retention tax on what goes into your account, which will be deductable. All capital gain tax is due when you dispose of the asset. Unless you've negligable income, buying bonds in ireland makes little sense because of the tax treatement.
 
Thanks Darag
Unless you've negligable income, buying bonds in ireland makes little sense because of the tax treatement
Just to confirm your point is that bond income is taxed at the higher rate but all deposit income is taxed at just 20%?
 
Just to confirm your point is that bond income is taxed at the higher rate but all deposit income is taxed at just 20%?
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Yep. In fact it's even worse than that - the coupons are treated exactly like income so PRSI and the health levy apply also. The same applies to share dividends.
 
Thanks.
However I feel ECB rates will go lower in 2008 so I still want to diversify my investments into some longer term fixed interest paying securities like 10 year Bunds @ 3.80% ytm.
Am I right in saying buying discounted bonds ( with lower coupon ) would make sense as CGT tax at 20% is less than the income tax?

One final really stupid question, if I hold the bunds to maturity do I still have to pay Capital Gains Tax?
 
Hi Spatenman - to be honest I think you would have to ask revenue for an interpretation as I'm not sure that they have hard and fast rules for all financial instruments and there are anomolies - for example with options. However I suspect you are on the right track as I don't see how they could apportion any of the gain as "income" rather than "capital gain". If this were the case, you should take it to the extreme and go with zero coupon bonds, if you can find ones with a suitable term; you'd avoid income tax completely and just get hit by capital gain when you sell.

However, I've no authority in this area. Because of tax treatment, hardly any individuals buy them here (unlike in the US where municipal, state and federal bonds are tax-free). You'd really need confirmation from revenue and/or a tax advisor/accountant that zeros only attract CGT.
 
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