What’s the tax treatment of an investment bond owned by a company?
For financial advisers onlyTue Nov 01 15:18:00 GMT 2016
There's a few methods a company can use to prepare its accounts. The method used will determine how the bond is taxed.
The 'historic cost' and 'fair value' basis are two of the available methods. The company's accountant will be best placed to advise which applies.
The historic cost accounting basis
Under the historic cost basis, the value recorded each year in the balance sheet is the original investment. No growth is accounted for in the financial statements until a withdrawal is taken and the gain or loss is realised. The 5% tax-deferred allowance isn't available to company investors. Corporation tax will be payable when a gain is realised.
Only very small companies can use the historic cost basis. These companies are also known as 'micro-entities'. To qualify as a micro-entity two of the following criteria must be met:
- A turnover of £632,000 or less.
- Balance sheet assets of up to £312,000.
- The average number of employees is 10 or less.
The fair value accounting basis
Under the fair value basis, the actual value of the investment bond is included in the accounts each year. Any growth in the year, will be subject to corporation tax.