SONIA tracking fund in an ISA vs easy-access cash ISA rate

thegentleway

Why easy access ISA? You can get 4% with 3 withdrawals. If you need more access than that the fees on tracker will add up...

Not applicable for you and it's in ISA but a nice advantage to SONIA tracker is for higher rate tax payers with unwrapped cash, as you can use CGT allowance for gains instead of paying higher rate on interest.

GeoffTF

artyboy said:

GeoffTF said:

artyboy said:

mark_cycling00 said:

It's from my spare cash in HL isa account.

I have vanguard isa account too but can't see a Sonia tracker on it. 

Agree it might be good to ytanfyrrom HL to iweb 

Vanguard has a fund - it's called the 

Sterling Short-Term Money Market Fund

- if you're logged in and doing a switch, it's under the fixed income list but you have to toggle the 'show income funds' switch on, otherwise I've found it's not visible by default.

It is under global fixed income, which is not very helpful. It has only £100 million market capitalisation, and the returns do not look particularly good. It may be lower risk than some of the other money market funds though.

No agreed, could be more intuitive. Does state that its benchmark is SONIA so whilst the fact sheet returns don't look good (due to historic rate lag), I'm hoping that it will return close to 4%...

Hoping is not good enough:

https://www.vanguardinvestor.co.uk/investments/vanguard-sterling-short-term-money-market-fund-investor-gbp-income-shares/distributions

NAV = £1. The 28 February distribution was £0.0025, which was for 4 weeks. The annualised return would be 1.0025^13 = 1.033, i.e. a compound rate of 3.3%. Not great. Royal London is better, but that may be because they are taking more risk. It is also possible that Vanguard has invested in longer dated paper which has not fully benefited from higher interest rates. I have not been able to find a detailed prospectus for RL. Vanguard is better from that point of view.

mark_cycling00

thegentleway said:

Why easy access ISA? You can get 4% with 3 withdrawals. If you need more access than that the fees on tracker will add up...

Not applicable for you and it's in ISA but a nice advantage to SONIA tracker is for higher rate tax payers with unwrapped cash, as you can use CGT allowance for gains instead of paying higher rate on interest.

that's fantastic advice!! I'd never thought of using Capital Gains allowance in addition to the interest allowance. 
And Cap gains won't take up any of the 20% earnings threshold.
More people should know about this! 

GeoffTF

mark_cycling00 said:

thegentleway said:

Why easy access ISA? You can get 4% with 3 withdrawals. If you need more access than that the fees on tracker will add up...

Not applicable for you and it's in ISA but a nice advantage to SONIA tracker is for higher rate tax payers with unwrapped cash, as you can use CGT allowance for gains instead of paying higher rate on interest.

that's fantastic advice!! I'd never thought of using Capital Gains allowance in addition to the interest allowance. 
And Cap gains won't take up any of the 20% earnings threshold.
More people should know about this! 

It is best that they do not, otherwise the exchequer will stop it as they did with "bond washing" gilts. It is possible that it is already illegal Tax Avoidance if you do it systematically:

https://www.gov.uk/guidance/tax-avoidance-an-introduction

spider42

thegentleway said:

Not applicable for you and it's in ISA but a nice advantage to SONIA tracker is for higher rate tax payers with unwrapped cash, as you can use CGT allowance for gains instead of paying higher rate on interest.

I'm struggling to see how this will generate capital gains. The Vanguard one declares income distributions monthly, which will be taxed as interest. And the unit price has been within a whisker of £1 ever since it launched. The only way I could see this working would be if you buy at the start of each month, and then sell again at the end of each month, so that you never receive a distribution and make a small (circa 0.25%) capital gain each month. Is that the plan?

spider42

I can see that the Royal London one only distributes every 6 months, so that would be easier to 'dodge' the distributions with than the Vanguard one.

thegentleway

spider42 said:

thegentleway said:

Not applicable for you and it's in ISA but a nice advantage to SONIA tracker is for higher rate tax payers with unwrapped cash, as you can use CGT allowance for gains instead of paying higher rate on interest.

I'm struggling to see how this will generate capital gains. The Vanguard one declares income distributions monthly, which will be taxed as interest. And the unit price has been within a whisker of £1 ever since it launched. The only way I could see this working would be if you buy at the start of each month, and then sell again at the end of each month, so that you never receive a distribution and make a small (circa 0.25%) capital gain each month. Is that the plan?

Good point. I didn't realise the income distributions would be taxed as interest. Thank you for explaining.  

Stargunner

The Royal London also offer an acc version of the fund so no income distributions are paid out.

spider42

Stargunner said:

The Royal London also offer an acc version of the fund so no income distributions are paid out.

Accumulation units don't pay the distributions out as cash, which is instead retained in the fund and will increase the unit price. But the notional distributions are still taxable income.

thegentleway

spider42 said:

Stargunner said:

The Royal London also offer an acc version of the fund so no income distributions are paid out.

Accumulation units don't pay the distributions out as cash, which is instead retained in the fund and will increase the unit price. But the notional distributions are still taxable income.

taxable as dividend income?