Interactive Investor - calculation of 25% tax free cash when holding Index Linked Gilts

hara____

Yes, I was thinking of a scenario where you accepted the trading costs but wanted to minimise market risk by holding similar durations to your existing ladder.

But I agree on your wider motives - must be others at risk of being caught out by this.

Sparschwein

Thanks for sharing this, and fighting it out with ii. That's really bad service.

A solution: AJ Bell responded that they value linkers at the clean price plus inflation-adjusted principal, without accrued interest. So neither the clean price nor the dirty price, but close to the dirty price. Specifically, they confirmed that they use this method both in the day-to-day portfolio overview and when calculating the tax-free lump sum from the SIPP. This matches Monevator's description of buying linkers at AJ Bell, see "How to buy index-linked gilts" from 8 Oct 2024. 
I have a SIPP at AJ Bell (but no linkers yet) and I'd recommend them.

mdonaldo

Hi, I have linkers at AJ Bell and can confirm I'm see the dirty price minus accrued interest in my account. Accrued interest is typically puny except for the T30I and T2IL. You could minimise that by activating drawdown when they enter the ex-dividend period or when they've just paid a divi. Probably simpler to sell though and buy back if needs be. 

This whole thing is lunacy. I can't believe ii's position. Or any other broker adopting this policy. Thank you so much for flagging this. 

Lowtrawler

Sparschwein said:

Thanks for sharing this, and fighting it out with ii. That's really bad service.

A solution: AJ Bell responded that they value linkers at the clean price plus inflation-adjusted principal, without accrued interest. So neither the clean price nor the dirty price, but close to the dirty price. Specifically, they confirmed that they use this method both in the day-to-day portfolio overview and when calculating the tax-free lump sum from the SIPP. This matches Monevator's description of buying linkers at AJ Bell, see "How to buy index-linked gilts" from 8 Oct 2024. 
I have a SIPP at AJ Bell (but no linkers yet) and I'd recommend them.

also @mdonaldo

Thanks for this. It contradicts the advice I was given from AJ Bell when I asked them the specific question.

On asking the question, they advised they only use the clean price for valuing the portfolio. They made no mention of adding inflation adjustment. They made specific mention that I would need to sell down the assets to get an accurate PCLS. This was all via secure message as my wife has a SIPP account with them.

Based on what you both are saying, AJ Bell would be a suitable provider for an in specie transfer should the ombudsman not find in my favour. I would be happy to suffer the loss from accrued interest as it would be quite small in the overall scheme of things.

DRS1

Why don't you ask your wife to buy an ILG in her SIPP and then see how it is valued in the portfolio overview.  Test the water before transferring and finding they are not the answer after all.

Sparschwein

Monevator's The Accumulator has also confirmed that what he is seeing in his AJ Bell SIPP is clean price plus inflation-adjustment. That's the most reliable source I know, short of seeing it in my own account.

If enough customers leave, then the likes of ii and HL will hopefully change this ridiculous practice.

Sparschwein

They don't allow posting links here, so google "Monevator How to buy index-linked gilts", see the article & comment #194

squirrelpie

Sparschwein said:

They don't allow posting links here

They do, but only for people who've been here a while (sorry, I don't remember the exact limt)

SnowMan

Sparschwein said:

They don't allow posting links here, so google "Monevator How to buy index-linked gilts", see the article & comment #194

Here's the link and it is a great article
https://monevator.com/how-to-buy-index-linked-gilts/

mdonaldo

Lowtrawler said:

Thanks for this. It contradicts the advice I was given from AJ Bell when I asked them the specific question.

On asking the question, they advised they only use the clean price for valuing the portfolio. They made no mention of adding inflation adjustment. They made specific mention that I would need to sell down the assets to get an accurate PCLS. This was all via secure message as my wife has a SIPP account with them.

Based on what you both are saying, AJ Bell would be a suitable provider for an in specie transfer should the ombudsman not find in my favour. I would be happy to suffer the loss from accrued interest as it would be quite small in the overall scheme of things.

This is nuts. AJ Bell is saying in that case, that they are showing one value in the portfolio view but will then go on to deflate the value of the asset when providing a PCLS valuation. 

In many respects this is even more strange than ii, because AJ Bell is actively showing a price (the inflation-adjusted clean price in this case) that's closer to the asset's true market value - the dirty price. 

As an AJ Bell customer there would be no advance warning ahead that something is amiss because the portfolio value displayed is essentially correct (barring the accrued interest effect). 

Lowtrawler, the extra detail you've provided (that they specifically mentioned selling to cash to get an accurate PCLS) makes me think AJ are no more suitable than ii. That detail suggests they're aware of the problem but their solution is you have to sell. 

I'll ask them the same question and see if I get the same answer. I'm more than happy to take this to the ombudsman too. 

In the last resort, it would be useful to know if they make the PCLS valuation on the same day you request it. A customer could sell, and re-buy if needs be. But it's still a ridiculous palaver and the cost would rack up if you owned a fair few linkers. Even as I type this, it just seems completely unacceptable for brokers to knowingly undervalue the asset using an unsuitable metric.