bonds / gilts

dannybbb

@wmb194 thanks. so in theory tax free? im unsure what a coupon is?

dannybbb

are they only really worth it if youre a higher rate tax payer given the current ratesseem lower than cash savings

masonic

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?

You need to be careful about confusing the coupon rate with the actual return you'll receive, because you won't buy a gilt for exactly £1. There will be a capital gain or loss as well as the interest. The yield to maturity (gross redemption yield on YieldGimp) will consist of part taxable interest (tax free in an ISA) and part tax exempt capital gain (or loss).

masonic

dannybbb said:

are they only really worth it if youre a higher rate tax payer given the current ratesseem lower than cash savings

For a 5 year fix, you're currently looking at 3.64% after basic rate tax. For a gilt (e.g. TG30), you'd get a little over 4% net.

kempiejon

dannybbb said:

are they only really worth it if youre a higher rate tax payer given the current ratesseem lower than cash savings

They are excellent for setting aside a fixed amount of money becoming available at a known date in the future with a very predictable return from purchase until maturity.
Low coupon gilts available under par are useful to those at or nearing the level of the personal allowance for basic rate tax payers. 

dannybbb

@masonic looks like you can get 4.55% for a 5 year fix so perhaps that might be better as i pay myself a mx of dividends and salary so under higher rate tax

dannybbb

https://www.closesavings.co.uk/personal/savings-accounts/fixed-rate-bond/5-year

masonic

dannybbb said:

@masonic looks like you can get 4.55% for a 5 year fix so perhaps that might be better as i pay myself a mx of dividends and salary so under higher rate tax

That is the figure before basic rate tax, so you'll actually get 3.64% after basic rate tax. If you don't pay any tax on your savings interest (under personal savings allowance) then it would be better, otherwise worse.

dannybbb

@masonic but wouldnt i pay tax on income from gilts? im trying to understand the difference  / the rate of return after tax so i can establish where to invest

InvesterJones

dannybbb said:

@masonic but wouldnt i pay tax on income from gilts? im trying to understand the difference  / the rate of return after tax so i can establish where to invest

Yes, but not on any capital gain. So if you were to buy a gilt for less than it's redemption value, the gain you get at redemption is not taxed. The yieldgimp website gives net return after tax (assuming 40%, but you can use this as a baseline).