Gilt Trade Issue

GeoffTF

GiltTrader1 said:

Poseidon 1-& kimwp. . I really hope I have accurately described what my issue is without going into the exact details of the amounts involved. The gain I made on 31/3/24 was the maturity of the first Gilt acquired in 2023. The 'gain' was a low 6 figure tax free sum. Up to that date and a week or so beyond, that was an 'Advisory' transaction over which I was supposed to have 'control'. I received a proposal for a much larger portfolio and I was happy to reinvest the old nominal amount I have previously invested together with additional investment in two low coupon portfolios which they recommended - one advisory and one discretionary. More recently I moved everything back to advisory as I was not happy about their recommendation that about 50% of the new increased investment went into 7,8,and 10 gilts but they said they expected 6 interest rate deductions this year and that I could sell them before their maturities and worse case I would 'get my return' if I held to maturity (which I do not wish to wait for that -inflation will kill any purchasing power buy then). These gilts are underwater despite the recent February interest rate cut. The 'six figure' amount which I never wanted to be included - they cant say in which gilt this was placed. 
I think I will make a formal complaint and see where this goes.
GeoffTF - I could sell the Gilts but would lose the six figure sum and more as I don't know where the six figure sum went as it was melded into the new monies I put in last April. 

Again I appreciate all your comments.

What you are saying makes no sense. It does not matter where the bank reinvested the money that you wanted returned to you.  If you need to sell some gilts to raise income you lose only: the value of those gilts on the day that the bank wrongfully reinvested your money, minus the sum that you raise, and minus any interest payments that you received on those gilts from that date (ignoring issues like accrued interest, and interest on interest). (You have to mitigate your loss. Ask the bank what you should sell.) Your accountant should be able to work out your precise loss (if any). If you can prove that loss occurred as a result of the bank failing to follow your instructions, you can make a claim for that loss, and potentially any professional fees that you incur in pursuing your claim.

DRS1

I think like many on this thread I had trouble understanding where the OP was coming from.  It seemed obvious that if you were reinvesting a gilt which had matured and which had made a gain then the reinvestment would include the gain as well as the original cost.
To compare it to what happens when a bank deposit or fixed rate bond matures seemed like comparing apples and pears.  One is savings and the other an investment.
But then I thought of how low coupon gilts are being regarded these days.
The returns they generate are being compared to those available on savings accounts and the tax treatment can give them an advantage for higher rate tax payers over bank deposits because the capital gain on maturity is CGT free.  You just have to look at the column on yieldgimp for the 40% Gross Equivalent to see this.
If you see the gain on maturity as just part of the yield on the investment then there is a good reason to regard the tax free gain on maturity as equivalent to interest thrown off by a fixed rate deposit and wanting to take it off the table is not quite as far fetched as it may seem at first glance.  It is as much part of the yield as the coupons.
I suppose the validity of the OP's case will depend on whether he communicated this view to the bank and whether his approval of the rollover can be taken to over-ride any such communication.

GeoffTF

DRS1 said:

If you see the gain on maturity as just part of the yield on the investment then there is a good reason to regard the tax free gain on maturity as equivalent to interest thrown off by a fixed rate deposit and wanting to take it off the table is not quite as far fetched as it may seem at first glance... I suppose the validity of the OP's case will depend on whether he communicated this view to the bank and whether his approval of the rollover can be taken to over-ride any such communication.

On the face of it, yes it would. Nonetheless, it is clear that the OP has been taking regulated advice. A fundamental question would have been whether he needs to take an income from his investment. He is paying for what is no doubt expensive advice. He should ask his advisors how he should withdraw that income. There may not be a significant problem here.

DRS1

GeoffTF said:

DRS1 said:

If you see the gain on maturity as just part of the yield on the investment then there is a good reason to regard the tax free gain on maturity as equivalent to interest thrown off by a fixed rate deposit and wanting to take it off the table is not quite as far fetched as it may seem at first glance... I suppose the validity of the OP's case will depend on whether he communicated this view to the bank and whether his approval of the rollover can be taken to over-ride any such communication.

On the face of it, yes it would. Nonetheless, it is clear that the OP has been taking regulated advice. A fundamental question would have been whether he needs to take an income from his investment. He is paying for what is no doubt expensive advice. He should ask his advisors how he should withdraw that income. There may not be a significant problem here.

Indeed - probably no problem at all if he is prepared to wait for the gilts to mature in due course.  As I understand it some of them are a lot shorter than 7, 8 or 10 years.

GeoffTF

DRS1 said:

GeoffTF said:

DRS1 said:

If you see the gain on maturity as just part of the yield on the investment then there is a good reason to regard the tax free gain on maturity as equivalent to interest thrown off by a fixed rate deposit and wanting to take it off the table is not quite as far fetched as it may seem at first glance... I suppose the validity of the OP's case will depend on whether he communicated this view to the bank and whether his approval of the rollover can be taken to over-ride any such communication.

On the face of it, yes it would. Nonetheless, it is clear that the OP has been taking regulated advice. A fundamental question would have been whether he needs to take an income from his investment. He is paying for what is no doubt expensive advice. He should ask his advisors how he should withdraw that income. There may not be a significant problem here.

Indeed - probably no problem at all if he is prepared to wait for the gilts to mature in due course.  As I understand it some of them are a lot shorter than 7, 8 or 10 years.

If he needs to raise £100K say, he may take a hit of a very few £K if he sells gilts to raise that. I do not expect that is much compared with what he is paying to bank to advise him on what we have been led to believe is a multi-£million portfolio. The OP seemed to think that the money that has been reinvested against his wishes has disappeared completely. Of course it has not. It might even be in profit.

GeoffTF

Yes indeed. If he wants to raise much more than £100K, surely he would have discussed that with his adviser. He talks of exiting his portfolio, but again it is difficult to see sense in that. Maybe he is fed up with the bank, and does not understand that he could get out with an in specie transfer. It makes it difficult for all concerned if you do not have a basic understanding.

DRS1

[Deleted User] said:

GeoffTF said:

If he needs to raise £100K say, he may take a hit of a very few £K if he sells gilts to raise that. I do not expect that is much compared with what he is paying to bank to advise him on what we have been led to believe is a multi-£million portfolio. The OP seemed to think that the money that has been reinvested against his wishes has disappeared completely. Of course it has not. It might even be in profit.

GiltTrader1 said:
I increase my exposure and they came up with a portfolio of gilts again with low coupons with expiry dates 1, 3, 4,5, 7, and 10 years out

....

I am currently taking significant losses if I exit my portfolio due to higher yields on the 7 and 10 year Gilts pushing prices down if I sell now. 

I don't know which gilts were bought in March 2024 but TG31 would have been a sensible seven year one with a 0.25% coupon.  The highest price in March 2024 was £77.54.  It is currently around £78.18 (so an increase of 0.8%, ignoring coupon paid).

It's not clear what gilt would have been the ten year one, but two candidates might have been:

- TG33 0.875% - highest price in March 2024 £76.58, price now £75.33 (so an increase of 1.7%, ignoring coupon paid)

- TG35 0.625% - highest price in March 2024 £69.51, price now £67.81 (so a loss of 2.4%, ignoring coupon paid)

So there would be no capital loss (both dirty prices and using the highest end of day price in March 2024) unless the ten year ones were TG35.  To raise £100,000, the loss would be roughly £2,500.  Obviously the loss gets more meaty if more is to be raised.

I may have mis-read something but I think the OP has index linked gilts so it is probably T33 or TRTQ for the 10 year one.  I have no idea what their prices were back in 2024.

DRS1

Of course the OP does complain about inflation eating away at the returns so maybe the new gilts post rollover were not index linked.

DeepSporran

We don’t know exactly which gilts were bought in March 24, but they were of duration 1 3 4 5 7 and 10 years. We also don’t know if they were conventional or indexers. However we are told that the 7 and 10 year ones are currently below purchase price. So I assume that the rest are currently breaking even at worst. Indeed, the 1 year gilt must mature soon and it must be a conventional gilt as there are no indexers maturing in 2025. So chances are it’s TG25 maturing in June 25 at par. TG25 has risen in price steadily over the last 12 months giving a yield of about 4%. Likely conventional candidates (not indexers) for the 3 and 4 year ones also show yield of about 4 %. For the 5 year one, the graph is a bit spikier but you’d be unlucky to show a current gain of much less than 4%. 

Assuming the investment was spread evenly over all the gilts, more than half is in the profitable gilts. OP, if you can persuade yourself that the profit from the original 2023 investment was put into these gilts, then you can cash out on these and you have taken your original profit (plus ~4%). The remaining 7 and 10 year ones currently showing a loss can be regarded as being purchased with the new money put in in  2024. You could leave these invested as they will mature at a profit, and you accepted at investment time that they might drop in value between purchase and maturity.

Of course, the bank cannot tell you which gilts were bought with your original profit and which were bought with the new money because every pound looks the same (fungible?). So my suggestion above is really a mind game to help you accept the situation positively.

It seems to me that the bank’s communications with you have not been as clear as you’d like. Does the bank have a good understanding of your financial requirements, attitude to risk etc. ? 

GiltTrader1

Thanks to everyone for posting further comments. The initial Gilt trade in 2023 was an Index Linked Gilt which matured in March 2024.
It's all low coupon conventional gilts. TG33 and TG35 that I have half of my portfolio. Their prices have been very volatile lately and have taken a dive following recent events. 
Just a recap the new portfolios that I took on at their recommendation in April 2024 was an Advisory and a Discretionary portfolio, I reverted the Discretionary portfolio back to Advisory after being disappointed that it contained more of the above long term gilts.
The remainder of the portfolio is TN26A TN28 TG29 TG30 TG31.
I never wanted the 8 and 10 Gilts but the Bank felt confident that there would be 6 interest rate cuts this year and so didn't expect me to have to hold to maturity which I wouldn't want to for multiple reasons.  I have (and never have had) a  'plan' for how I can take income from this portfolio and the coupons have not of course covered the fees. 
It's hard to make a tax free return these days and the six figure sum that was made from the sale of that Gilt would have been very handy. 
Deep Sporran- appreciate your above suggestion as a way to look at things- do you mean recover the 'gain' plus another 4%?
Again thanks everyone.