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bonds / gilts

dannybbb
Posts: 152 Forumite


Looking for a way to invest cash outside of the stock market, rates are above inflation but have been thinking about looking at bonds. Im unsure about where to start looking at bonds, any recommendations?
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also thinking about this for my sipp but again unsure of where to begin so any tips would be helpful0
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Bonds are loans or debt from companies or other institutions. Gilts are UK government debt. Usually they are issued at and redeemed at a fixed known price. They pay a coupon, a percentage of issue price, like interest and are taxed as such. There are index linked versions - more complicated. GIlts ar exempt of capital gains tax in unsheltered accounts.
article here. https://www.moneysavingexpert.com/savings/uk-gilts-lower-tax-savings/
I buy mine through my online stock platform.
https://www.ajbell.co.uk/our-services/investment-options/gilts/prices
I find them useful for known capital amounts set to mature a date in the future and fixed returns. There's a bit of research, a useful deviersifier from stocks.4 -
Some gilts are a good tax efficient way (especially for 40% or higher tax payers) of saving in something that is a lot like a fixed term savings account.A fixed term savings account pays a set rate agreed upon front and matures after that term (popular terms are 1yr and round numbers of years and sometimes shorter like 6months). This interest counts as income and taxed at your marginal income tax rate if you have exceeded your savings allowance.A low coupon gilt you buy at a fixed price today and it matures at a known date in the future at a price of 100. They also pay coupons which are like interest payments (usually every 6 months) and are taxed but if the coupon is very small most of the yield (equivalent to interest, usually expressed as an annualised rate) is capital gain which is untaxed for gilts. A simple
example would be that you buy a gilt at 96 which matures in 1year, and you will get back 100 on the maturity date, this is roughly 4% return (actually a bit more since 100/96 =1.0417) and will and you will also gain the coupon.A site like yieldgimp.com shows all the gilts and helpfully highlights the low coupon gilts and even gives you the latest price and yield and also the post 40% tax equivalent yield (like an APR the yield can be used to compare different gilts).At the moment you can get 1yr fixes which pay around 4.5%-4.8% but the two next low coupon gilts are T26 which matures 30th Jan 2026 and T26A maturing 22nd October 2026 which yield around 3.5-4% but for a 40% tax payer are both equivalent to earning over 6% before tax.Whilst the value of bonds and gilts can go up and down, if you hold on to these until they mature you know exactly what you will get so you are ‘locking in’ a return when you buy them, but if you did sell before maturity then you could be worse off than in a savings account. It’s not that much different to putting your money in a 1yr fix at 4.6% and then a few weeks later there is a 1yr fix at 5% available but it’s too late to take advantage. But with both if you hold them until they mature you know exactly what you will get back.Gilts are issued by the UK government which also is the ultimate backstop to the FSCS guarantee, so most people would consider investing in a gilt the same risk as depositing in a savings account up to the FSCS protected amount of 85k, but with gilts obviously the amount is (for practical purposes as an individual investor) unlimited.3 -
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does TR25 pay 5% per year and is it tax free? seems like a good option
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dannybbb said:does TR25 pay 5% per year and is it tax free? seems like a good option
Gilts are CGT free but coupons are taxed as interest but you can hold them in Isas and Sipps.
https://www.yieldgimp.com/
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So if you buy gilts outside of ISA/SIPP then you subject to income tax?
When you buy a 4% gilt in your ISA, then there's no difference compared to 4% fixed cash ISA?0 -
dannybbb said:
It's more complicated than that, the linked post tells of clean and dirty prices, when you buy a gilt the seller is compensated for the so far acrued interest they'll miss out on. As that gilt is for sale at £1.002 plus costs and you only get £1 back and you have to pay interst of 2.35p to the seller. A buyer today would get 0.15p in a couple of weeks, the bond mature 07/03/2025.0 -
Newbie_John said:So if you buy gilts outside of ISA/SIPP then you subject to income tax?
When you buy a 4% gilt in your ISA, then there's no difference compared to 4% fixed cash ISA?
One can buy gilts in the secondary market, that is the attraction especially for higher rate tax payers and those that have reached the allowance for cash interest before tax. Some have a low coupon, and low coupon/interest for example 0.125 T26 in the table above is available for sale at 96p. So at maturity £1 is returned, a profit of 4p. That profit, all profits on UK government bonds in unsheltered accounts are free of capital gains tax. That gain is equivalent or can be better than 4% interest on unsheltered cash. There is the 0.0625p in interest to potentially pay tax on.
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