Has anyone included income from short term (less than 1 year maturity) US treasury bonds (known as Treasury bills or T-bills) on a UK tax return? I owned some through Treasury Direct and it looks like these are taxed in an unusual way by the UK.
The return on T-bills is paid at maturity, rather than in regular interest payments. Investors buy bills at a discount from par (or "face") value and the difference between the purchase price and what the investor receives at maturity is the interest. So a $10,000 bill sold at issue for $9,900 yields $100 as the investor gets $10,000 back. The Treasury issues a 1099 that shows the difference as interest received on the day the bill matures.
In the UK, as the bills are sold at a discount, they may be seen as “Deeply Discounted Securities” that do not pay conventional interest. The gain on a DDS is always taxed as income to avoid someone claiming it as capital gain. It seems these are often issued as a type of corporate bond. On a foreign investment the income is the difference between the purchase and redemption price after each has been converted to sterling on the day the transactions took place, so includes any foreign exchange gains. Losses cannot be deducted.
I am not certain of the right way to report these. I am looking for any evidence that HMRC would agree the T-bills pay interest and could be excluded from DDS taxation and treated as a normal security, but so far cannot find anything to support that. The UK-US tax treaty includes a section on interest that seems to show the US would treat the difference as interest in a normal way. I wondered if I could claim some treaty exemption but again, cannot find any references.
Thanks for feedback on any prior experience of these.
