Glossary · UK
What is Qualifying Corporate Bond (QCB)?
A category of corporate loan stock, including most conventional company and government bonds, that is exempt from Capital Gains Tax on disposal, though any gain or loss is also generally ignored for tax purposes.
Full Definition
A Qualifying Corporate Bond (QCB) is a specific type of debt security -- broadly, a "normal commercial loan" denominated in sterling with no rights of conversion into shares or other securities, and not linked to any index or asset other than a recognised currency exchange rate -- that receives special Capital Gains Tax treatment under UK tax law. Gains on the disposal of a QCB are exempt from Capital Gains Tax, meaning an investor selling a QCB at a profit pays no CGT on that gain. Most conventional corporate bonds issued by UK companies, along with UK gilts (government bonds), qualify as QCBs, provided they meet the sterling-denomination and non-convertible conditions. The flip side of the CGT exemption is that losses on QCBs are also generally not allowable for Capital Gains Tax purposes -- an investor who sells a QCB at a loss cannot normally use that loss to offset other capital gains, unlike losses on shares or non-qualifying bonds, which can usually be set against gains elsewhere. This asymmetric treatment matters for investors holding corporate bond funds or individual bond holdings outside an ISA or pension wrapper, since the tax treatment of any eventual gain or loss depends on whether the specific bond meets the QCB conditions -- a bond convertible into shares, for example, or one denominated in a foreign currency, would typically be a non-qualifying corporate bond instead, and would be subject to ordinary CGT rules. Interest received on a QCB (as opposed to any capital gain on disposal) is generally taxable as savings income under Income Tax in the normal way, sheltered where applicable by the Personal Savings Allowance and starting rate for savings. Because QCB status depends on the precise legal terms of the bond rather than how it is marketed, investors holding corporate bonds directly (rather than through a fund, where different "reporting fund" rules can apply) should check the bond's specific terms, or consult a tax adviser, if the CGT treatment of a gain or loss is significant to their overall tax position.