Accrued interest on Corporate Bonds

All of the corporate bonds I have purchased to date have been new issues. Could someone please explain to me what happens when you buy or sell a bond in the market which has accrued interest attaching to it? When (and how) does the vendor receive the credit for the accrued interest?

Many thanks


  • If a 2023 bond was issued paying 5% each year and I bought 1000 at issue (100p), I would pay £1000.
    If after 18 months it was trading on the open market at say a mid price of 102p and I decided to sell, I might get 101.5p (£1015) plus 2.5% of that years interest (£25) totalling £1040.
    If you bought 1000 of the same bond at that time, you might pay 102.5 (£1025) and accrued interest of 2.5% of that years interest (£25), totalling £1050. At the end of that year, you would get 5% interest (£50), which would of course net 2.5% (£25).
    Remember that there is a bid-offer spread for bonds trading on the market. With Selftrade, you can buy bonds online. With many of the other brokers, you need to phone up to trade. Some charge a fair rate where they don’t offer online trading and some do not!
  • Some brokers also offer limit trading, so you can try a spot of fishing! e.g. Were the spread on the above quoted bond be 101-103, you could put a limit order in offering to buy at 102.5.
  • When you buy or sell the accrued interest is normally shown on the contract note .

    Keep these as if the bond are held outside an ISA you may need them to help with your tax return, as these amounts, as far as I am aware, are not usually shown in the annual consolidated tax returns that the brokers send to you at the end of the financial year (Selftrade doesn't for example)
  • Thanks Guys, I'll give it a try. I'm in the position of having built up a corporate bond portfolio in an ISA. I have cash in a SIPP and want to build up a corporate bond "ladder" in the SIPP, but want to sell some of the ISA holdings to limit my exposure on individual holdings. The bid-offer spread will hurt when I "transfer" from the ISA to the SIPP but I'm willing to take the hit to introduce some stability into the pension pot.
  • Doesn't make a lot of sense to me - selling in one pot to buy the same thing in another pot.

    Both pots belong to you and the spreads and possibly two lots of broker commission on corps means quite a cost for no benefit. Bear in mind too that this might not be the best time to be buying fixed rate investments with inflation/interest rates set to rise (probably).

    On top of that, you say the whole point is to introduce some stability into your pension pot - but what you seem to be proposing is going to result in introducing some instability into your ISA (or at least that's what you seem to expect).

    More thought needed, I think

  • BoringBob,
    I agree with you Laughton, regarding the holding of securities.
    Unusual to sell ISA holdings to limit individual holdings, if anything it is the other way round, in particular if you are planning to take 25% lump-sum out of the SIPP, and place some (or all) of the cash back into your ISA as part of the annual allowance.
    For risk analysis I combine both portfolios together to get a % of each company holding, maintaining a maximum of 5% of the total.
    Most of my holdings are Fixed Interest Securities.
    I treat both SIPP / ISA as my future pension pot, with the emphasis to grow the ISA side due it to being outside the "Income Tax" scheme.
    Depending on your income tax situation, getting money from a SIPP (as taxed pension income or 25% lumpsum) into an ISA so it can grow without being taxed upon receipt is an important strategy, but don't do it if it means paying a higher rate of tax!

    Ps, most corporate bonds are / have recently been at their peak pricing (low yields)
    Perhaps not the best time to buy further!
  • Thanks Guys, I value your input. My situation is probably unusual in that I am in the fortunate position of being able to pack in work at the age of 58 but I need to finance the next 8 years until state and final salary pensions kick in at 66/65. I transferred a couple of small money purchase pots into a SIPP and I can draw £16k per annum from this tax free and utilise my personal allowance. Tax efficiency is driving the exercise! (The SIPP will fund living expenses and the ISA will fund capital items/holidays) The SIPP is a finite pot which needs to last 8 years hence my desire to lower the risk profile in it. I am happy to accept risk in the ISA as it is not timebound.
    So as things stand, I have a wad of cash in the SIPP and have been monitoring corporate bond prices for the last 3 months. I am of the opinion that they have further to fall so I am holding off buying. If I "transfer" corporate bonds from the ISA to the SIPP the market price is largely irrelevant all I will lose is the spread on the transfer (ignoring any capital appreciation in the ISA). I can then generate a known income within the SIPP and draw the proceeds from the SIPP as the bonds mature. Cash proceeds in the ISA can be invested across a range of investments with a longer term focus. Something I am currently looking at from an IFISA perspective are debentures through where fairly low risk social enterprise projects are generating decent returns. Does anyone have any experience of Abundance?
Sign In or Register to comment.