Have I understood gilts?

Nebulous2

It could be more than £195k as you would be getting the interest / coupon paid out regularly. At the end you will get £132k or so, with the other £60k being paid in dribs and drabs over the 29 years. You would expect to get some return on that £60k between now and maturity, depending what you do with it. 

I've just bought gilts in a SIPP and I went for T46 which is 4.25% rather than 1.625%. I'll get less at the end and more on the way through than you.

I think I possibly put less thought into it than you did however - I've had a plan to buy gilts for some time, and seeing the yields had increased dramatically earlier this week I decided to pull the trigger there and then.  

OldScientist

j_netprofit said:

I appreciate I'm perhaps being a bit needy here but I'm not necessarily looking for advise, just if my understanding and workings out are correct.

In this scenario I'm considering investing into a gilt that matures close to 2054.
The investment sum is £60k.

Therefore investing said amount today into the TR54 would return approx £195k

Or have I completely misunderstood?

If my workings out are correct...and it doesn't take you an age to check...is there another gilt that would offer a better return with the ball park maturity date of say 2046-2055?

Thanks in advance

Yes, the total cashflow (not return) is approximately £195k

j_netprofit

Just purchased TG46, thank you all for you help here!

artyboy

Another newbie to gilts here so hope you'll forgive me piggybacking with another question. As I understand it, gains on gilts are CGT free so any under-par ones you buy and hold to maturity, that gain up to the £100 par is CGT and income tax free?

if that's right, this one really looks an outlier - with just over 2.5 years to go, it's yielding around 6.5% (if my ciggie packet maths is correct). And in general terms, the lower the par and lower the coupon is a good thing from a tax perspective, especially if you're paying 40/45% rates.

Am I missing something?

SnowMan

That strip has a current gross yield of 3.9%pa based on the closing price on 14th April according to tradeweb

Strips are taxed differently to gilts. The difference between the purchase price and maturity amount is effectively taxed as income and is not a tax free capital gain (it's actually assessed on an annual basis)

artyboy

SnowMan said:

That strip has a current gross yield of 3.9%pa based on the closing price on 14th April according to tradeweb

Strips are taxed differently to gilts. The difference between the purchase price and maturity amount is effectively taxed as income and is not a tax free capital gain (it's actually assessed on an annual basis)

I knew it was too good to be true. So apart from the fact that HL's website has it priced wrong, it's also taxable. Back to the drawing board then...

SnowMan

artyboy said:

I knew it was too good to be true. So apart from the fact that HL's website has it priced wrong, it's also taxable. Back to the drawing board then...

That's probably a historic price from when it was last traded. I know very little about strips but I doubt strips are easily purchasable (or even purchasable at all) by UK individual investors in any case.

poseidon1

SnowMan said:

artyboy said:

I knew it was too good to be true. So apart from the fact that HL's website has it priced wrong, it's also taxable. Back to the drawing board then...

That's probably a historic price from when it was last traded. I know very little about strips but I doubt strips are easily purchasable (or even purchasable at all) by UK individual investors in any case.

I can confirm that the DMO now consider Strips unsuitable for small retail investors, so will not be accessible on retail platforms. Indeed from what I have ascertained trades in Strips seem confined to large institutions, with smaller historic residual retail holders able to sell but no longer buy.

Short term T Bills are the nearest equivalent but durations tend to be only 3 to 6 month, discounts are no way as deep and once bought must be held until maturity. See below an example of a recent issue hosted by HL -

https://www.hl.co.uk/shares/ipos-and-new-issues/3-month-uk-treasury-bill

saajan_12

j_netprofit said:

Just purchased TG46, thank you all for you help here!

Welcome. Don't forget to set up a mechanism to deal with the coupons every 6 months - either by reinvesting or depositing into an account with a decent interest rate. Over 20 years, that'll bolster up your return. 

SnowMan

Thanks interesting

Incidentally the tradeweb strip price shown above is essentially a theoretical price

Prices for strips
Mid-side prices for UK gilt strips are derived from a yield curve, which is fitted to the end-of-day gilt yields corresponding to the Tradeweb FTSE gilt prices.

https://www.lseg.com/content/dam/ftse-russell/en_us/documents/policy-documents/guide-to-the-calculation-of-tradeweb-ftse-gilt-closing-prices.pdf