A couple of simple gilt questions.. I think!

zagfles

wmb194 said:

zagfles said:

wmb194 said:

easysaver said:

ChilliBob said:

I suspect a lot of people are interested in gilts for the tax purposes, if it wasn't for thay I think it'd stick to fixed rates instead, it's easier for sure. 

Gilts are currently CGT free. Emphasis on currently. Why wouldn't the govt bring Gilts within the scope of CGT to raise much needed tax revenue?... especially in this increasing yield environment.

Highly unlikely because the flip side is that if you buy them above par you would be able to reliably manufacture capital losses. My understanding is this is why they were made CGT free in the first place i.e. people were making capital gains from other assets including equities and then negating their gains by buying gilts above par and holding them to maturity and the Treasury was losing CGT revenue.

But why would anyone do that, if they're above par then they'll have a high coupon, so you make a capital loss but you'll receive taxable interest instead. Usually interest is taxed more heavily than capital gains. There might be some niche scenarios it'd work eg using the savings starting rate but I'd have thought that would be negligible as a tax avoidance ploy.

That was the story. Prevailing interest rates and CGT, income tax, corporation tax and whatever else individuals, companies, funds and institutions pay have varied greatly over time and the numbers may have worked better in some decades and scenarios than others. 

It still hasn't been reversed and the current scenario of below par gilts with small coupons has created the opportunity to effectively earn interest tax free by making it a guaranteed CGT-free capital gain. I don't suppose the Treasury ever had this in mind, hah hah!

They probably do now though! I wouldn't be surprised to CGT introduced on gilts sometime in the near future, I can't believe it'd cost the Treasury (through some niche method of offsetting gains elsewhere or whatever) more than it'd make them.

Workerbee999

aroominyork said:

Johnjdc said:

Does anyone know why TY25 seems (if bought in a tax advantaged account) to be sticking out like a sore thumb in terms of being more generous than the yield curve?

https://www.yieldgimp.com/gilt-yields

It's interesting. First, put aside the question of whether late October 2025 is the sweet spot for gilt yields, ie the date the market expects the base rate to start falling. A high coupon gilt like TY25 seems a good investment if you do not have to pay tax on the coupon (either your income is within the personal tax allowance or you are tax-wrapped in a SIPP/ISA) but a bad place if you are a 40% taxpayer. So that seems to be reflected in the pricing - lower demand for this gilt (I would not buy it) pushes the price down and hence the gross yield up.

Hi. I’m new to gilts but looking at moving some of my HL SSIP (assuming they offer it) into this to de-risk as I’m 55 in Sep 2025 and want to start accessing around then (to fill the gap to DBs).I had seen TN25 mentioned a couple of times but just read your comment here, and the Oct 25 timing fits in with my timescale.

but I’m quite nervous about it as I don’t understand coupon rates, accrued interest and how gilts work in general when held to maturity - and what if I changed my mind, can it be sold again in the same way I would buy now, what is the risk?.

I did notice your comment though that this TY25 could be attractive if not having to pay tax on the coupon, and this would be in my SSIP, but I don’t understand why it could be good? If you could possibly spend a few minutes giving me an idiots guide on how to understand and pick the right one I would be really grateful.

Doctor_Who

Workerbee999 said:

aroominyork said:

Johnjdc said:

Does anyone know why TY25 seems (if bought in a tax advantaged account) to be sticking out like a sore thumb in terms of being more generous than the yield curve?

https://www.yieldgimp.com/gilt-yields

It's interesting. First, put aside the question of whether late October 2025 is the sweet spot for gilt yields, ie the date the market expects the base rate to start falling. A high coupon gilt like TY25 seems a good investment if you do not have to pay tax on the coupon (either your income is within the personal tax allowance or you are tax-wrapped in a SIPP/ISA) but a bad place if you are a 40% taxpayer. So that seems to be reflected in the pricing - lower demand for this gilt (I would not buy it) pushes the price down and hence the gross yield up.

Hi. I’m new to gilts but looking at moving some of my HL SSIP (assuming they offer it) into this to de-risk as I’m 55 in Sep 2025 and want to start accessing around then (to fill the gap to DBs).I had seen TN25 mentioned a couple of times but just read your comment here, and the Oct 25 timing fits in with my timescale.

but I’m quite nervous about it as I don’t understand coupon rates, accrued interest and how gilts work in general when held to maturity - and what if I changed my mind, can it be sold again in the same way I would buy now, what is the risk?.

I did notice your comment though that this TY25 could be attractive if not having to pay tax on the coupon, and this would be in my SSIP, but I don’t understand why it could be good? If you could possibly spend a few minutes giving me an idiots guide on how to understand and pick the right one I would be really grateful.

In a SIPP I would tend to favour a short term money market fund if you want to hold a cash like investment, rather than holding gilts directly. STMMFs that track SONIA give interest around 4.5%, which is free of tax in a SIPP and have very low volatility. Short term gilts are OK, but are more complicated and they have fixed maturity dates, which may not match with your plans.

Cus

Is the TY25 not included in any future boe quantitative easing ( selling back their share to the market) so better yield as it's not going to be flooded?

Stargunner

Workerbee999 said:

aroominyork said:

Johnjdc said:

Does anyone know why TY25 seems (if bought in a tax advantaged account) to be sticking out like a sore thumb in terms of being more generous than the yield curve?

https://www.yieldgimp.com/gilt-yields

It's interesting. First, put aside the question of whether late October 2025 is the sweet spot for gilt yields, ie the date the market expects the base rate to start falling. A high coupon gilt like TY25 seems a good investment if you do not have to pay tax on the coupon (either your income is within the personal tax allowance or you are tax-wrapped in a SIPP/ISA) but a bad place if you are a 40% taxpayer. So that seems to be reflected in the pricing - lower demand for this gilt (I would not buy it) pushes the price down and hence the gross yield up.

Hi. I’m new to gilts but looking at moving some of my HL SSIP (assuming they offer it) into this to de-risk as I’m 55 in Sep 2025 and want to start accessing around then (to fill the gap to DBs).I had seen TN25 mentioned a couple of times but just read your comment here, and the Oct 25 timing fits in with my timescale.

but I’m quite nervous about it as I don’t understand coupon rates, accrued interest and how gilts work in general when held to maturity - and what if I changed my mind, can it be sold again in the same way I would buy now, what is the risk?.

I did notice your comment though that this TY25 could be attractive if not having to pay tax on the coupon, and this would be in my SSIP, but I don’t understand why it could be good? If you could possibly spend a few minutes giving me an idiots guide on how to understand and pick the right one I would be really grateful.

I was also going to suggest a short term money market fund. You can buy CSH2 (an etf) on HL which is very cheap to hold due to HL’s fees on ETF’s. Sonia rate is currently around 4,92%

aroominyork

Doctor_Who said:

Workerbee999 said:

aroominyork said:

Johnjdc said:

Does anyone know why TY25 seems (if bought in a tax advantaged account) to be sticking out like a sore thumb in terms of being more generous than the yield curve?

https://www.yieldgimp.com/gilt-yields

It's interesting. First, put aside the question of whether late October 2025 is the sweet spot for gilt yields, ie the date the market expects the base rate to start falling. A high coupon gilt like TY25 seems a good investment if you do not have to pay tax on the coupon (either your income is within the personal tax allowance or you are tax-wrapped in a SIPP/ISA) but a bad place if you are a 40% taxpayer. So that seems to be reflected in the pricing - lower demand for this gilt (I would not buy it) pushes the price down and hence the gross yield up.

Hi. I’m new to gilts but looking at moving some of my HL SSIP (assuming they offer it) into this to de-risk as I’m 55 in Sep 2025 and want to start accessing around then (to fill the gap to DBs).I had seen TN25 mentioned a couple of times but just read your comment here, and the Oct 25 timing fits in with my timescale.

but I’m quite nervous about it as I don’t understand coupon rates, accrued interest and how gilts work in general when held to maturity - and what if I changed my mind, can it be sold again in the same way I would buy now, what is the risk?.

I did notice your comment though that this TY25 could be attractive if not having to pay tax on the coupon, and this would be in my SSIP, but I don’t understand why it could be good? If you could possibly spend a few minutes giving me an idiots guide on how to understand and pick the right one I would be really grateful.

In a SIPP I would tend to favour a short term money market fund if you want to hold a cash like investment, rather than holding gilts directly. STMMFs that track SONIA give interest around 4.5%, which is free of tax in a SIPP and have very low volatility. Short term gilts are OK, but are more complicated and they have fixed maturity dates, which may not match with your plans.

You pays your money and you takes your choice. STMMF like CSH2 return 4.3% based on the last month's performance. Short term gilts are paying about 1% more.

Workerbee999

aroominyork said:

Doctor_Who said:

Workerbee999 said:

aroominyork said:

Johnjdc said:

Does anyone know why TY25 seems (if bought in a tax advantaged account) to be sticking out like a sore thumb in terms of being more generous than the yield curve?

https://www.yieldgimp.com/gilt-yields

It's interesting. First, put aside the question of whether late October 2025 is the sweet spot for gilt yields, ie the date the market expects the base rate to start falling. A high coupon gilt like TY25 seems a good investment if you do not have to pay tax on the coupon (either your income is within the personal tax allowance or you are tax-wrapped in a SIPP/ISA) but a bad place if you are a 40% taxpayer. So that seems to be reflected in the pricing - lower demand for this gilt (I would not buy it) pushes the price down and hence the gross yield up.

Hi. I’m new to gilts but looking at moving some of my HL SSIP (assuming they offer it) into this to de-risk as I’m 55 in Sep 2025 and want to start accessing around then (to fill the gap to DBs).I had seen TN25 mentioned a couple of times but just read your comment here, and the Oct 25 timing fits in with my timescale.

but I’m quite nervous about it as I don’t understand coupon rates, accrued interest and how gilts work in general when held to maturity - and what if I changed my mind, can it be sold again in the same way I would buy now, what is the risk?.

I did notice your comment though that this TY25 could be attractive if not having to pay tax on the coupon, and this would be in my SSIP, but I don’t understand why it could be good? If you could possibly spend a few minutes giving me an idiots guide on how to understand and pick the right one I would be really grateful.

In a SIPP I would tend to favour a short term money market fund if you want to hold a cash like investment, rather than holding gilts directly. STMMFs that track SONIA give interest around 4.5%, which is free of tax in a SIPP and have very low volatility. Short term gilts are OK, but are more complicated and they have fixed maturity dates, which may not match with your plans.

You pays your money and you takes your choice. STMMF like CSH2 return 4.3% based on the last month's performance. Short term gilts are paying about 1% more.

I’ve already got a short term money market fund in a previous company DC (Av MyM BlackRock Sterling Liquidity) , the pot is with Aviva but with restricted options through my old company and this was the only money market one to chose and no straight cash option, hope it’s half decent.

so I was thinking I should have some diversity in my HL SIPP, isn’t that a good idea? I’m fine with fixing the timescale to Oct25, and I thought some fixed interest would complement the money market that could drop again (any likelihood in the next 2 years?) , but if I do introduce some gilts I’d appreciate a bit of guidance on my question about the TY25 etc. Would be good to understand the drawbacks to having gilts in a SIPP - what is complicated assuming I’m fine with the fixed date? Thanks

spider42

Workerbee999 said:

aroominyork said:

Doctor_Who said:

Workerbee999 said:

aroominyork said:

Johnjdc said:

Does anyone know why TY25 seems (if bought in a tax advantaged account) to be sticking out like a sore thumb in terms of being more generous than the yield curve?

https://www.yieldgimp.com/gilt-yields

It's interesting. First, put aside the question of whether late October 2025 is the sweet spot for gilt yields, ie the date the market expects the base rate to start falling. A high coupon gilt like TY25 seems a good investment if you do not have to pay tax on the coupon (either your income is within the personal tax allowance or you are tax-wrapped in a SIPP/ISA) but a bad place if you are a 40% taxpayer. So that seems to be reflected in the pricing - lower demand for this gilt (I would not buy it) pushes the price down and hence the gross yield up.

Hi. I’m new to gilts but looking at moving some of my HL SSIP (assuming they offer it) into this to de-risk as I’m 55 in Sep 2025 and want to start accessing around then (to fill the gap to DBs).I had seen TN25 mentioned a couple of times but just read your comment here, and the Oct 25 timing fits in with my timescale.

but I’m quite nervous about it as I don’t understand coupon rates, accrued interest and how gilts work in general when held to maturity - and what if I changed my mind, can it be sold again in the same way I would buy now, what is the risk?.

I did notice your comment though that this TY25 could be attractive if not having to pay tax on the coupon, and this would be in my SSIP, but I don’t understand why it could be good? If you could possibly spend a few minutes giving me an idiots guide on how to understand and pick the right one I would be really grateful.

In a SIPP I would tend to favour a short term money market fund if you want to hold a cash like investment, rather than holding gilts directly. STMMFs that track SONIA give interest around 4.5%, which is free of tax in a SIPP and have very low volatility. Short term gilts are OK, but are more complicated and they have fixed maturity dates, which may not match with your plans.

You pays your money and you takes your choice. STMMF like CSH2 return 4.3% based on the last month's performance. Short term gilts are paying about 1% more.

Would be good to understand the drawbacks to having gilts in a SIPP - what is complicated assuming I’m fine with the fixed date? Thanks

To me, it seems counter intuitive to hold gilts within a tax shelter. They would be virtually tax-free anyway outside the shelter (if you pick a low coupon gilt).

Although there will be no tax within the SIPP as the gilt income & gains arise, you'll effectively be paying 15% if basic rate (20% Income Tax, with 25% tax-free) or 30% if higher rate (40% Income Tax , with 25% tax-free) when you drawdown the gilt growth out of the SIPP.

If you bought gilts outside the SIPP, then you'd pay minimal tax (just Income Tax on the 0.25% coupon). But if the cash is already inside the SIPP and you are just trying to find a short-term home for it until you reach 55, then that might not be an option.

Doctor_Who

Workerbee999 said:

I’ve already got a short term money market fund in a previous company DC (Av MyM BlackRock Sterling Liquidity) , the pot is with Aviva but with restricted options through my old company and this was the only money market one to chose and no straight cash option, hope it’s half decent.

so I was thinking I should have some diversity in my HL SIPP, isn’t that a good idea? I’m fine with fixing the timescale to Oct25, and I thought some fixed interest would complement the money market that could drop again (any likelihood in the next 2 years?) , but if I do introduce some gilts I’d appreciate a bit of guidance on my question about the TY25 etc. Would be good to understand the drawbacks to having gilts in a SIPP - what is complicated assuming I’m fine with the fixed date? Thanks

You won't be adding much diversity by adding gilts to a portfolio already containing a STMMF. The fund is likely to be invested in gilts (amongst other cash-like investments). No one can predict the future! Gilts can also drop in value, look at the recent past (although holding to maturity negates this). In a tax wrapper most of the complexities of gilts (accrued income loss/tax on the coupon) can be ignored. Gilts are more complicated than a MMF, for example you can buy gilts that are priced above par with a good coupon. You will have a good income (4-6%) that is taxable outside a tax wrapper, but you are guaranteed a capital loss at maturity (gilts mature at par). Therefore, it is essential that you do your own research and calculations as to their suitability for your situation (which only you know).

zagfles

spider42 said:

Workerbee999 said:

aroominyork said:

Doctor_Who said:

Workerbee999 said:

aroominyork said:

Johnjdc said:

Does anyone know why TY25 seems (if bought in a tax advantaged account) to be sticking out like a sore thumb in terms of being more generous than the yield curve?

https://www.yieldgimp.com/gilt-yields

It's interesting. First, put aside the question of whether late October 2025 is the sweet spot for gilt yields, ie the date the market expects the base rate to start falling. A high coupon gilt like TY25 seems a good investment if you do not have to pay tax on the coupon (either your income is within the personal tax allowance or you are tax-wrapped in a SIPP/ISA) but a bad place if you are a 40% taxpayer. So that seems to be reflected in the pricing - lower demand for this gilt (I would not buy it) pushes the price down and hence the gross yield up.

Hi. I’m new to gilts but looking at moving some of my HL SSIP (assuming they offer it) into this to de-risk as I’m 55 in Sep 2025 and want to start accessing around then (to fill the gap to DBs).I had seen TN25 mentioned a couple of times but just read your comment here, and the Oct 25 timing fits in with my timescale.

but I’m quite nervous about it as I don’t understand coupon rates, accrued interest and how gilts work in general when held to maturity - and what if I changed my mind, can it be sold again in the same way I would buy now, what is the risk?.

I did notice your comment though that this TY25 could be attractive if not having to pay tax on the coupon, and this would be in my SSIP, but I don’t understand why it could be good? If you could possibly spend a few minutes giving me an idiots guide on how to understand and pick the right one I would be really grateful.

In a SIPP I would tend to favour a short term money market fund if you want to hold a cash like investment, rather than holding gilts directly. STMMFs that track SONIA give interest around 4.5%, which is free of tax in a SIPP and have very low volatility. Short term gilts are OK, but are more complicated and they have fixed maturity dates, which may not match with your plans.

You pays your money and you takes your choice. STMMF like CSH2 return 4.3% based on the last month's performance. Short term gilts are paying about 1% more.

Would be good to understand the drawbacks to having gilts in a SIPP - what is complicated assuming I’m fine with the fixed date? Thanks

To me, it seems counter intuitive to hold gilts within a tax shelter. They would be virtually tax-free anyway outside the shelter (if you pick a low coupon gilt).

Although there will be no tax within the SIPP as the gilt income & gains arise, you'll effectively be paying 15% if basic rate (20% Income Tax, with 25% tax-free) or 30% if higher rate (40% Income Tax , with 25% tax-free) when you drawdown the gilt growth out of the SIPP.

If you bought gilts outside the SIPP, then you'd pay minimal tax (just Income Tax on the 0.25% coupon). But if the cash is already inside the SIPP and you are just trying to find a short-term home for it until you reach 55, then that might not be an option.

Your reasoning is flawed as you're not accounting for tax relief on the way into the SIPP. That makes any gains within the SIPP effectively tax free as the extra tax you pay on the gain when withdrawing is more than offset by the gain itself being on a bigger amount.

Example £1000 invested outside SIPP, grows 10% to £1100, minus any tax on interest.

Instead put it in a SIPP, assume basic rate taxpayer, £1000 grossed up to £1250 with tax relief. Grows 10% to £1375. No tax on growth/interest inside the SIPP.

Withdraw £1375 with 15% tax (25% tax free and 20% tax on 75%), net £1168.75.