Buying UK short term gilts as a tax shelter?

wmb194

kempiejon said:

Ooh, while I remember, particularly for those already holding unsheltered shares and adding gilts as a place to park cash safely to reduce tax on interest ones capital gains allowance is used. The increase in value between buying below par and the gilt redeeming at par is a capital gain. So while savings interest allowance is £500/£1000 which low income gilts would be subject to these low coupon gilts would also be subject to capital gains, where the allowance is £3000.

No, gilts and other qualifying bonds are exempt from CGT. You only have to be careful with securities classed as deeply discounted securities. This does include one month UK Treasury bills - capital gains are classed as interest - but none of the current gilts classify as such.

The OP says he’s bought investment trusts and they’re listed shares so gilts shouldn’t be too alien. The OP’s worrying far too much, conventional gilts are easy.

plantation_2

kempiejon said:

Ooh, while I remember, particularly for those already holding unsheltered shares and adding gilts as a place to park cash safely to reduce tax on interest ones capital gains allowance is used. The increase in value between buying below par and the gilt redeeming at par is a capital gain. So while savings interest allowance is £500/£1000 which low income gilts would be subject to these low coupon gilts would also be subject to capital gains, where the allowance is £3000.

Sorry but this is completely wrong. Capital gains made on gilts are completely tax free so don't use up your normal capital gains allowance and don't have to be included on your self assessment return (if you file one). The link below confirms this (the para starting "Apart from this ..."). This is why low coupon gilts are potentially so useful for higher rate tax payers who want an alternative to fixed term savings

https://www.dmo.gov.uk/responsibilities/gilt-market/buying-selling/taxation/

kempiejon

gravel_2 said:

kempiejon said:

Ooh, while I remember, particularly for those already holding unsheltered shares and adding gilts as a place to park cash safely to reduce tax on interest ones capital gains allowance is used. The increase in value between buying below par and the gilt redeeming at par is a capital gain. So while savings interest allowance is £500/£1000 which low income gilts would be subject to these low coupon gilts would also be subject to capital gains, where the allowance is £3000.

Isn't this contrary to the primary benefit of owning gilts - that their redemption or disposal does not attract CGT?

cause it is. Sorry I clearly knew that.

zagfles

JamesRobinson48 said:

Besides commission, OP also needs to factor in the cost of the buy/sell dealing spread. This can vary, and tends to be higher for longer-dated index-linked gilts that may be less liquid. But for short-dated straight gilts the buy/sell spread can be fairly small. For example on AJ Bell a moment ago I saw that for TN28 (0.125% coupon maturing Jan-2028) the indicative trade prices per £100 nominal are:  sell £88.50, buy £88.80.  I am assuming that a retail investor transacting at the short end would typically intend to hold until maturity, in which case they would only incur the dealing spread once, in a single buy trade.

I don't think OP should be put off by gilts transaction costs on a major platform such as AJ Bell, providing the £ amount per trade is an adequately sizeable figure. Personally I wouldn't bother for less than a minimum of £5k at a time, more likely £10k or more, but that depends on individual circumstances.  Also, personally I wouldn't bother for maturities less than a minimum of two/three years, as then the upfront costs (modest though they are) might meaningfully deplete one's effective yield earned over the gilt's life.  But again it depends on one's circumstances (e.g. personal income tax bracket), risk appetite, and other fixed rates available in the savings marketplace. Anyhow, anyone can do the comparative math given that all the cash flows are predetermined.

If OP intends to hold to maturity he/she doesn't need to look at the spread, just look at the buy price. 

Linton

kempiejon said:

Ooh, while I remember, particularly for those already holding unsheltered shares and adding gilts as a place to park cash safely to reduce tax on interest ones capital gains allowance is used. The increase in value between buying below par and the gilt redeeming at par is a capital gain. So while savings interest allowance is £500/£1000 which low income gilts would be subject to these low coupon gilts would also be subject to capital gains, where the allowance is £3000.

Gilts are not subject to capital gains tax.