Zero Coupon Bonds

This is a type of bond that does not pay periodic interest to the bondholder, rather it is sold at a discount to its face value and the investor receives the face value of the bond when it matures.

While zero-coupon bonds offer a fixed return at maturity, there is some risk associated with holding them, particularly if the issuer defaults. Investors should assess the creditworthiness of the issuer before investing and seek expert advice in this respect.

Unlike some Countries, from a UK taxation point of view, being that no interest is physically paid during their life, the tax liability is calculated at maturity. The following is the HMRC general position.

'If an individual is unable to withdraw or have access to the interest when it is credited to their account, or has a specific product such as a bond, the interest will not arise and therefore they will not be taxable until they have access to the interest.'