Income Tax (Trading and Other Income) Act 2005 section 380

Funding bonds

Section 380 deals with the income tax treatment of funding bonds issued to creditors in lieu of interest payments on debts owed by governments, public bodies or companies.

• When a government, public institution, public authority or corporate body issues funding bonds to a creditor instead of paying interest on a debt, the issue is treated for income tax purposes as a payment of interest
• The amount of interest deemed to have been paid equals the market value of the bonds at the time they are issued, not their nominal or face value
• Funding bonds is a broad term covering bonds, stocks, shares, securities and certificates of indebtedness, but excluding instruments that provide for payment in goods, services or vouchers
• All funding bond interest is treated as interest income for income tax purposes, ensuring consistent tax treatment regardless of the circumstances of issue