What’s the tax treatment of an investment bond owned by a company?

There are a variety of methods which a company can use to prepare its accounts. The historic cost basis and the fair value basis are two options. The company’s accountant will be best placed to advise which applies and how the bond would be taxed.

Under the historic cost accounting 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 is not available to company investors. Corporation tax will be payable when a gain is realised.

Companies which can use the historic cost basis are those that come under the Companies Act 2006 definition of a small company. Two of the following criteria must be met:

  • Turnover of £6.5 million or less
  • Balance sheet assets of up to £3.26 million
  • The average number of employees is 50 or less

Under the fair value accounting 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.