Zero coupon bond

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Securities which pay no intermediate coupons, but only a redemption amount, so that the whole of the return to investors is represented by their capital gain from their investment date to the redemption of the bond at its final maturity.

This may be beneficial for some taxpayers, especially high-income individuals. Historically, capital gains have been taxed less heavily than income in many tax systems.

More recently, some of the historical differences in tax treatment - and the related tax planning opportunities - have been reduced.

For example, the UK Corporation Tax treatment is now more aligned with the accounting treatment of spreading the total gain across the whole life of the bond.

See also