Interest on Coupons

In the new budget we are told that the first £1000 of interest is now free of tax. Does this mean this will apply to coupon payments. If this is so then there is little reason to hold Corperate Bonds in an ISA account. I could ask the Inland Rev. but i have better things to do than wait on the phone for an hour or so. Please advise. Thanks


  • Corporate Bonds have always paid interest "Gross".
    It makes very good sense to place your corporate bond holdings within a tax free environment, whether in an ISA or SIPP.
    £1k may be tax free under the new proposals, but will it be the same in 5 years time?
    It also keeps your "communication" with the Inland Revenue to the minimum!
  • Agree with Shaun. From what i believe Financial institutions will "grass you up" to the inland revenue who will then in turn claw back any monies through your tax code !
  • Shaunm's point is well made - things could change in the future e.g. the next government may abolish or reduce the £1,000 of non taxable interest but are less likely to get rid of ISAs. Some people may become higher rate taxpayers in the future in which case £1,000 becomes £500. Also if interest rates rise then the £1,000 will look less generous or if you buy bonds for the next 20 years your coupons could could exceed the allowance if it doesn't increase.

    Same argument applies to equities - if your dividends are less than £5,000 and a basic rate taxpayer and you don't exceed the CGT allowance then again an ISA has no immediate benefit but I would still use it.

    Isa also helps admin as you don't have to declare it to Inland Revenue. Even if other routes ultimately pay no tax you may have to put them on a tax return which is extra paperwork to complete and records to keep.
  • Firstly thanks for the comments folk. However i think i need to supply more details now that interest in the subject has been raised.
    The first thing is am i understanding the amount tax free. Yes its £1000 but is that the interest amount or the actual tax free amount. i.e £1000 interest saves you £200 in tax or £5000 interest saves you £1000 in tax.
  • You can recieve £1000 in untaxed income. So it's not an amount on which you can recieve interest tax free.

  • see the revenues fact sheet
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