Flashcards in Chapter 14 Gilts and QCBs Deck (2)
QCBs and gilts
QCB – a qualifying corporate bond is a type of security (also referred to as loan stock or debentures). If an investor buys loan stock in a company, the investor is lending money to the company and this money will be paid back at a future date. If a company issues loan stock to an investor, the company will pay the investor interest on the loan as opposed to dividends. For loan stock to satisfy the definition of a QCB, it must satisfy three conditions:
• The loan stock must have been issued after March 1984 and
• The loan stock must be expressed in sterling and
• The loan stock cannot be converted into any other currency
When a UK company pays interest on loan stock to its investors, assuming those investors are individuals, it must withhold 20% tax at source. The investor therefore receives the interest net of tax.
Gilts – a gilt-edged security is another example of loan stock, but it is issued by the government. Examples are UK Government Treasury Stock or Exchequer Stock. They are denominated in sterling and are non-convertible, they carry a fixed rate of interest from the date of acquisition.