Income Tax (Trading and Other Income) Act 2005 section 754

Redemption of funding bonds

Section 754 prevents a double tax charge on funding bonds by ensuring that when bonds are redeemed, the redemption is not taxed as interest if the original issue of those bonds was already taxed as interest.

• When funding bonds are issued in lieu of paying interest on a debt, the issue itself is treated as a payment of interest and taxed accordingly under section 380 of ITTOIA 2005 or section 413 of CTA 2009.
• When those same funding bonds are later redeemed, the redemption is not treated as a further payment of interest for income tax purposes, thereby avoiding a double charge to tax on the same amount.
• This exemption on redemption applies even where the original deemed interest on issuance was charged to corporation tax but the bondholder at the time of redemption is an income tax payer.
• The term "funding bonds" is broadly defined and includes not only bonds but also stocks, shares, securities, and certificates of indebtedness.