For those who want cash/near cash in their SIPP

Phoned Barclays some time ago for info on the mechanism and dates/timing for calculating RPI/interest payments. Also query on income tax deduction when payment added to coupon. Not very good explanation in brochure. But could not extract info from Barclays, reason given: not regulated product so they cannot "advise" to non-IFA/private client by providing this specific info......speak to a broker or wealth manager instead. Not a lot of help.

Fortunately the more recent RBS RPI offering looks more competitive anyway (3.9% gross), better described on the calculation/timing side in their brochure, and can be bought in more flexible unit combinations (£100 each) relative to Barclays (£1000 each).

Find the RBS RPI offering very interesting inflation hedge and also better income relative to savings and cash ISA rates. Feel the product is also more flexible than NSI ILCs (when available) as no need to hold for minimum 12 mth term. Two obvious considerations are RBS default/counterparty risk and potential 1% buy/sell spread.

But frustrated as would like to know:

(i) If income tax will be deducted from payments added in standard, ISA and SIPP trading accounts? And how much (10%/20%)?

(ii) Obviously no CGT if in ISA/SIPP but from RBS brochure, when bonds are purchased "direct", it states "If held directly capital increases are tax free, as a qualifying corporate bond, and interest payments are subject to income tax". What purchase method is this?

(iii) From RBS brochure, calculation: Issue date = 1st Nov, first payment 3mths later = 1st Feb 2011 based on RPI Dec 2010 (2mths previous) vs RPI Dec 2009 (14 mths previous). Hence, presumably the RPI bond first gross quarterly payment would be a minimum of 3.3% (Sep 10 RPI=225.3; Dec 09 RPI=218.0...225.3/218.0 = 1.0334 = 3.3%) + next 3mths RPI....Surely first payment must be a quarter of this final %RPI Dec 10/Dec 09 or a quarter of 3.9% (interest)? And then for second payment, must be based on a quarter of %RPI Mar 2010/Mar 2009 etc etc??? Brochure suggests whole of the % RPI for the last 2mths vs last 14mths for each payment which cannot be right?

Direct links to Barclays and RBS brochures on RPI/Libor bonds here:

Barclays: http://www.fixedincomeinvestor.co.uk/sdoc/3487-1.pdf

RBS: http://ukmarkets.rbs.com/EN/MediaLibrary/Document/PDF/Factsheet/Products/Bonds/Inf_Linked_RoyalBond_web.pdf


Futher interesting articles on the merit of Barclays RPI and RBS RPI/Libor bonds here:

Barclays: http://www.investorschronicle.co.uk/Tips/Buy/MiniTips/article/20100929/d9e6cc9a-cbb2-11df-95d8-00144f2af8e8/Barclays-bond-to-beat-inflation.jsp

RBS: http://www.investorschronicle.co.uk/Tips/Buy/MiniTips/article/20101027/dbda25da-e118-11df-93a8-00144f2af8e8/Hedging-with-RBS-bonds.jsp


Any thoughts or suggestions on (i)-(iii)??


JamesU

purch wrote: »

No Income Tax will be deducted I would think, as it is a market traded instrument.

I would assume direct means direct from RBS Markets.

Yes, checked with RBS who were very helpful and prepared to discuss finer details, unlike Barclays.

For info, first payment from RBS RPI bond (ticker: RBPI) will be on 1st Feb based on a quarter of ONS %RPI in Dec 10 or a quarter of 3.9%, whichever is highest. Simple.

On taxation, no income tax deduction if held in a trading account when payments made. So e.g CGT/IT tax free gross quarterly payments into ISA/SIPP. Also as it is a qualifying corporate bond, if purchased direct, there will be no CGT but payments should be declared for income tax purposes.


JamesU