UK Gilts - Low Coupon Rates

newatc

As I move in 40% tax territory, I'm looking at low coupon UK Gilts (made my first purchase with TN28 with 0.125 coupon).
I'll be looking to buy some more next year. How likely is it that further Gilt issues will have low coupons assuming bank rates stay around the same level ?

newatc

Thank you @JamesRobinson48 , it was what I thought. There are still some low coupons around, so I will consider them together with the indexed link option.

Money_Grabber13579

I suspect gilts may become a lot more popular as more and more people find themselves falling into higher tax rates. What is the cheapest way of buying and holding gilts? My existing provider charges 0.4% which significantly reduces any benefit so wonder what platform other people use?

Hoenir

X-o is free of charge for a GIA

https://www.x-o.co.uk/

Ultimately supply is limited. Over time opportunities will diminish as proceeds get rolled over from issue to issue. 

zagfles

Money_Grabber13579 said:

I suspect gilts may become a lot more popular as more and more people find themselves falling into higher tax rates. What is the cheapest way of buying and holding gilts? My existing provider charges 0.4% which significantly reduces any benefit so wonder what platform other people use?

HL charge nothing for holding gilts unwrapped. There's a cost of something like £12 to buy, although if you buy a decent amount this is fairly insignificant and IME is usually made up for by getting a slightly better buy price than the published buy price. 

Ciprico

JamesRobinson48 said:

The nominal coupons of newly issued conventional gilts are normally somewhat aligned with current market yield to maturity for existing issues of the respective tenor. At present, that would be within the range 4% - 5% for most tenors. So unless market conditions change massively, you're not going to find a newly issued conventional gilt with the type of low coupon that would be of assistance for mitigating income tax.  On the other hand, there is every chance of continuing to have plenty of scope for income tax mitigation with index-linked gilts (a more complex instrument). 

Could you provide an example of an IL gilt and breakdown of the costs and proceeds...

Thanks

Linton

newatc said:

As I move in 40% tax territory, I'm looking at low coupon UK Gilts (made my first purchase with TN28 with 0.125 coupon).
I'll be looking to buy some more next year. How likely is it that further Gilt issues will have low coupons assuming bank rates stay around the same level ?

It would seem to make sense for the government to issue gilts with coupons close to the market rates.  If they issued ones with low coupon the market would price them down giving the government with less money now and a larger debt in the future. 

I guess IL bonds may have lower coupons since their main selling point is a guaranteed capital gain at maturity rather than interest in the meantime.

OldScientist

Linton said:

newatc said:

As I move in 40% tax territory, I'm looking at low coupon UK Gilts (made my first purchase with TN28 with 0.125 coupon).
I'll be looking to buy some more next year. How likely is it that further Gilt issues will have low coupons assuming bank rates stay around the same level ?

It would seem to make sense for the government to issue gilts with coupons close to the market rates.  If they issued ones with low coupon the market would price them down giving the government with less money now and a larger debt in the future. 

I guess IL bonds may have lower coupons since their main selling point is a guaranteed capital gain at maturity rather than interest in the meantime.

Coupons on IL bonds are set at the real yield (such that their issue price is close to 100).

zagfles

Ciprico said:

JamesRobinson48 said:

The nominal coupons of newly issued conventional gilts are normally somewhat aligned with current market yield to maturity for existing issues of the respective tenor. At present, that would be within the range 4% - 5% for most tenors. So unless market conditions change massively, you're not going to find a newly issued conventional gilt with the type of low coupon that would be of assistance for mitigating income tax.  On the other hand, there is every chance of continuing to have plenty of scope for income tax mitigation with index-linked gilts (a more complex instrument). 

Could you provide an example of an IL gilt and breakdown of the costs and proceeds...

Thanks

Loads of info on the DMO site Index-linked Gilts 

newatc

The more I read on indexed linked, the more I think I'll keep to the standard gilts and leave the indexed-linked to those with more brain power than me 

Linton

newatc said:

The more I read on indexed linked, the more I think I'll keep to the standard gilts and leave the indexed-linked to those with more brain power than me 

They do give you what you want - lower interest in £ terms with a higher capital gain compared with equivalent fixed gilts. Though I agree it is very sensible not to invest in things you do not understand.