Interest on development loan bonds

The interest you earn on development loan bonds is net of all fees. It includes the interest on your total investment cost, plus the return of the 2% transaction fee paid at the time of investment.

An illustrative example of a development loan bond paying 10% net interest with a 12 month term for a £1,000 investment:

Total investment cost:                         £1,000

Transaction fee:                                   £20

Investment capital (bonds held):        £980

At the end of the term, if the loan is repaid in full and on time, you will receive:

Investment capital:                                     £980 

Interest to cover initial transaction fee:    £20

10% interest on total investment cost:      £100

The total amount of returned funds will be £1,100, representing a 10% net total return on your investment cost. 

The investment capital returned will appear under your Account History as ‘Capital repaid’. The transaction fee and interest returned will appear as one entry under your Account History as ‘Interest paid’.

Withholding tax

Interest paid on investments made through a UK domiciled corporate account or an ISA account is paid gross and not subject to withholding tax. 

Otherwise, in keeping with HMRC rules, London House Exchange is obliged to withhold tax on interest payments at the basic rate of UK income tax, currently 20%. This applies to interest payments on LHX development loan bonds and mortgage bonds. The repayment of the LHX transaction fee as interest only applies to development loan bonds, no fees are charged to invest in mortgage bonds. 

Once withholding tax has been accounted for, the net interest received in the above example will be reduced by 20%.

Investment capital:                                       £980 

Interest to cover initial transaction fee:      £20

10% interest on total investment cost:        £100

Withholding tax on total interest (20%):     (£24)

The total amount of returned funds will be £1,076. 

UK resident investors may be entitled to a full or partial rebate of the witholding tax, or, be obliged to pay additional income tax on the interest received, depending on individual circumstances. Click here to learn more about taxation on interest and to access the tax self-assessment form.

Non-UK resident investors may be able to reclaim all or part of withheld UK income tax if their country of residence has a double taxation treaty with the UK. Click here to learn more about double taxation and reclaiming withheld tax on UK interest payments.

Please note that London House Exchange does not provide tax advice and any information is provided for information purposes only. Clients are advised to obtain appropriate tax or investment advice where necessary.