Tax on Government Bonds

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JamesBM

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Gains on EU government bonds are as I understand not subject to CGT. With the recent rise in rates many EU issued bonds issued in recent years are trading at discounts to par. Does the Revenue only tax the coupon as income or do they impute a yield? Also any advice for which broker platforms to buy EU bonds? Local brokers charge a lot of commission and coverage on some online platforms is patchy.
 
Does this mean that if I buy a zero coupon Irish Govt Bond and hold it to maturity that I will pay no capital gains tax? e.g. there is a EUR 9bn 0% issue maturing 18th Oct 2031 that trades at ~78c face value today / 2.8% imputed yield. If I buy that and hold it until is redeemed at par then I have no tax to pay at all?
 
This trade will now pay a 3% yield to maturity.. I'm tempted to jump in if my assumption on the tax treatment is correct - can anyone confirm?
 
From a recent NTMA government bond prospectus (can't link directly to it unfortunately).
Taxation:

Interest on the bond will be paid gross without deduction of income tax or any other deductions or withholdings.

In general, where the holder of the bond is an Irish resident taxpayer, the interest element payable on the bond is assessable to income tax, whereas any gains arising on disposal or redemption of the bond are exempt from capital gains tax. However, where the bondholder resident in Ireland is dealing in Government bonds as part of a trade, he/she is assessable to income tax or corporation tax, as the case may be, in respect of the interest element and also the gains arising on disposal or on redemption of the bond.

Section 43 of the Taxes Consolidation Act 1997 of Ireland provides that the bond and the interest payable thereon is exempt from all Irish taxation so long as it is shown that the bond is in the beneficial ownership of a person not resident in Ireland. However, where the bond is held by or for an Irish branch or agency of a foreign financial concern, interest and gains on such bond will be chargeable to Irish tax.
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Interesting.

Pay 77.14 today, get 100 in eight years, no CGT.

30% return over eight years (with no credit risk?)
 
The most risk free asset is considered to be US Treasury Bond

Yes, you get 28% return over 8 years but you have to tie up your money for the full 8 years to guarantee this. Note that 28% over 8 years is "only" 2.8% per annum so taking likely inflation into account, this is likely to be a losing investment
 
jpd said:
The most risk free asset is considered to be US Treasury Bond

Yes, you get 28% return over 8 years but you have to tie up your money for the full 8 years to guarantee this. Note that 28% over 8 years is "only" 2.8% per annum so taking likely inflation into account, this is likely to be a losing investment
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28% after tax.. but I agree the broad point. Nevertheless, I still see it being a more interesting option relative to longer fixed term cash deposit, An Post savings bonds etc.

Shorter term issues might be more value as the curve is practically flat from 1 - 10yr e.g. 0.2% coupon issue maturing May 2027 yields 3% and can be bought for 89 so you bank >90% of the return tax free and have a minimal income tax exposure on the small coupon.
 
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I'm not familiar with the DeGiro offering tbh but all accessible via Cantor for sure.
 
The link below is to a prospectus which contains the part on tax in Clubman's post above. It does also contain a warning to take advice. https://www.ntma.ie/uploads/general...ular-UPDATE-August-2020_2020-08-31-112852.pdf

DeGiro has some Irish Bonds but has a wide range of Bunds (which are subject to the same tax treatment). Bid/Offer on shorter dated stuff (2/3 year) is reasonable at 4 to 6 cents and commission is fixed and small. There seems to be a dearth of fixed term Fixed Income Options for pensions here? Anyone know of a decent fund from Aviva or New Ireland? I guess the high fees here take a chunk and make it less attractive as an asset class.
 
bigred said:
Does this mean that if I buy a zero coupon Irish Govt Bond and hold it to maturity that I will pay no capital gains tax? e.g. there is a EUR 9bn 0% issue maturing 18th Oct 2031 that trades at ~78c face value today / 2.8% imputed yield. If I buy that and hold it until is redeemed at par then I have no tax to pay at all?
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Did anyone get a confirmation on the CGT implications of this, if there is any?
 
AAAContributor said:
If not dealing in bonds as part of a trade, no CGT.

Source - Page 2 of the NTMA's bond prospectus for the 0% Treasury Bond 2031

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What do you mean by 'as part of a trade'? Below is the relevant paragraph from your link. Are these conditions the same for all Irish Gov bonds or do they differ from bond to bond with different maturity dates?
However, where the bondholder resident in Ireland is dealing in Government bonds as part of a
trade, he/she is assessable to income tax or corporation tax, as the case may be, in
respect of the interest element and also the gains arising on disposal or on redemption
of the bond.
 
Tobyboy said:
What do you mean by 'as part of a trade'?
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You're definitely not carrying out a trade!

Banks, investment firms, etc trade bonds, and would be subject to normal tax treatment on profits / losses.

The issue has been explained in another thread you commented on.
 
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