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

Notepad_Phil

TheGreenFrog said:

Escalate.  Hopefully at some stage someone in ii will realise it would be very unwise for them to let this go to the Ombudsman.

Good luck, but depending on the amount of work that ii would need to do to get the price and the number of people who actually use them in a SIPP, then I can see the easiest way for ii might be to just stop offering index linkers in a SIPP. It wouldn't be the first time that a complaint has generated unforeseen consequences.

TheGreenFrog

Notepad_Phil said:

TheGreenFrog said:

Escalate.  Hopefully at some stage someone in ii will realise it would be very unwise for them to let this go to the Ombudsman.

Good luck, but depending on the amount of work that ii would need to do to get the price and the number of people who actually use them in a SIPP, then I can see the easiest way for ii might be to just stop offering index linkers in a SIPP. It wouldn't be the first time that a complaint has generated unforeseen consequences.

Yes, quite possible.  Interactive Brokers doesn't allow retail customers to deal in any gilts - falls into the too difficult category.

zagfles

Notepad_Phil said:

TheGreenFrog said:

Escalate.  Hopefully at some stage someone in ii will realise it would be very unwise for them to let this go to the Ombudsman.

Good luck, but depending on the amount of work that ii would need to do to get the price and the number of people who actually use them in a SIPP, then I can see the easiest way for ii might be to just stop offering index linkers in a SIPP. It wouldn't be the first time that a complaint has generated unforeseen consequences.

It's hardly any work, all they need to do is download the DMO spreadsheet here Index-linked Gilts in Issue and multiply the clean price by the index ratio. Even if it has to be done manually by someone with a calculator it should only take 10 mins as a one off, and maybe someone else to double check it. 

HL are interesting, they display the clean prices when looking at the SIPP value, so way undervalues IL gilts, but when you go into Drawdown Information they show the "arrangement value" as the real valuation ie based on the dirty price. So they are capable of valuing it properly. My SIPP is crystallised so not sure where you'd see this on an uncrystallised SIPP, but the fact they can value it properly when it matters, I suspect would mean they'd value it properly if you wanted to take tax free cash. 

squirrelpie

But Lowtrawler already has them. He doesn't want to buy more?! So they can either deal with them correctly, or ask him to move to another platform, at the right price.

TheGreenFrog

zagfles said:

It's hardly any work, all they need to do is download the DMO spreadsheet here Index-linked Gilts in Issue and multiply the clean price by the index ratio. Even if it has to be done manually by someone with a calculator it should only take 10 mins as a one off, and maybe someone else to double check it. 

HL are interesting, they display the clean prices when looking at the SIPP value, so way undervalues IL gilts, but when you go into Drawdown Information they show the "arrangement value" as the real valuation ie based on the dirty price. So they are capable of valuing it properly. My SIPP is crystallised so not sure where you'd see this on an uncrystallised SIPP, but the fact they can value it properly when it matters, I suspect would mean they'd value it properly if you wanted to take tax free cash. 

Does multiplying clean by the index ratio get you the dirty price?  I thought maybe you need to factor in the accrued interest on top, although this will be a very small amount of the difference between clean and dirty on an ILG.  You could also take the dirty price from Tradeweb, which I think is what DMO refers you to for prices.

michaels

Is it also the case that they are a pain to buy and sell through II?  Has anyone found a sipp provider where they are easily managed and hopefully correctly valued?

zagfles

TheGreenFrog said:

zagfles said:

It's hardly any work, all they need to do is download the DMO spreadsheet here Index-linked Gilts in Issue and multiply the clean price by the index ratio. Even if it has to be done manually by someone with a calculator it should only take 10 mins as a one off, and maybe someone else to double check it. 

HL are interesting, they display the clean prices when looking at the SIPP value, so way undervalues IL gilts, but when you go into Drawdown Information they show the "arrangement value" as the real valuation ie based on the dirty price. So they are capable of valuing it properly. My SIPP is crystallised so not sure where you'd see this on an uncrystallised SIPP, but the fact they can value it properly when it matters, I suspect would mean they'd value it properly if you wanted to take tax free cash. 

Does multiplying clean by the index ratio get you the dirty price?  I thought maybe you need to factor in the accrued interest on top, although this will be a very small amount of the difference between clean and dirty on an ILG.  You could also take the dirty price from Tradeweb, which I think is what DMO refers you to for prices.

Yes for a truely accurate dirty price you need the accrued interest as well, but this would apply to flat gilts as well (in fact more so for flat gilts as the coupon will likely be higher). This could be worked out easily enough, but I'm not sure whether that's usually done for other assets, ie account for potential income due in the future from them (eg shares past the XD date). 

Hoenir

zagfles said:

TheGreenFrog said:

zagfles said:

It's hardly any work, all they need to do is download the DMO spreadsheet here Index-linked Gilts in Issue and multiply the clean price by the index ratio. Even if it has to be done manually by someone with a calculator it should only take 10 mins as a one off, and maybe someone else to double check it. 

HL are interesting, they display the clean prices when looking at the SIPP value, so way undervalues IL gilts, but when you go into Drawdown Information they show the "arrangement value" as the real valuation ie based on the dirty price. So they are capable of valuing it properly. My SIPP is crystallised so not sure where you'd see this on an uncrystallised SIPP, but the fact they can value it properly when it matters, I suspect would mean they'd value it properly if you wanted to take tax free cash. 

Does multiplying clean by the index ratio get you the dirty price?  I thought maybe you need to factor in the accrued interest on top, although this will be a very small amount of the difference between clean and dirty on an ILG.  You could also take the dirty price from Tradeweb, which I think is what DMO refers you to for prices.

Yes for a truely accurate dirty price you need the accrued interest as well, but this would apply to flat gilts as well (in fact more so for flat gilts as the coupon will likely be higher). This could be worked out easily enough, but I'm not sure whether that's usually done for other assets, ie account for potential income due in the future from them (eg shares past the XD date). 

Spot on. Any investment that goes XD is only valued at it's clean price. There's no accrual of divdends, interest etc. Small retail investors have to do the leg work for themselves. (Spreadsheets are extremely handy).  That's why platform fees are so cheap. If you want all the bells and whistles then you need to pay for somebody's time. 

TheGreenFrog

zagfles said:

TheGreenFrog said:

zagfles said:

It's hardly any work, all they need to do is download the DMO spreadsheet here Index-linked Gilts in Issue and multiply the clean price by the index ratio. Even if it has to be done manually by someone with a calculator it should only take 10 mins as a one off, and maybe someone else to double check it. 

HL are interesting, they display the clean prices when looking at the SIPP value, so way undervalues IL gilts, but when you go into Drawdown Information they show the "arrangement value" as the real valuation ie based on the dirty price. So they are capable of valuing it properly. My SIPP is crystallised so not sure where you'd see this on an uncrystallised SIPP, but the fact they can value it properly when it matters, I suspect would mean they'd value it properly if you wanted to take tax free cash. 

Does multiplying clean by the index ratio get you the dirty price?  I thought maybe you need to factor in the accrued interest on top, although this will be a very small amount of the difference between clean and dirty on an ILG.  You could also take the dirty price from Tradeweb, which I think is what DMO refers you to for prices.

Yes for a truely accurate dirty price you need the accrued interest as well, but this would apply to flat gilts as well (in fact more so for flat gilts as the coupon will likely be higher). This could be worked out easily enough, but I'm not sure whether that's usually done for other assets, ie account for potential income due in the future from them (eg shares past the XD date). 

Agree re conventional gilts.  But shares and XD is a slightly different issue.  The XD price is the market value of the asset concerned.  The issue is not that your XD shares are incorrectly valued but that you have an asset - the right to receive the dividend - that is perhaps not valued at all.  But some platforms do attribute value to that right, such as Interactive Brokers which has a separate section for accrued but unpaid dividends in its reports. 

SnowMan

TheGreenFrog said:

zagfles said:

It's hardly any work, all they need to do is download the DMO spreadsheet here Index-linked Gilts in Issue and multiply the clean price by the index ratio. Even if it has to be done manually by someone with a calculator it should only take 10 mins as a one off, and maybe someone else to double check it. 

HL are interesting, they display the clean prices when looking at the SIPP value, so way undervalues IL gilts, but when you go into Drawdown Information they show the "arrangement value" as the real valuation ie based on the dirty price. So they are capable of valuing it properly. My SIPP is crystallised so not sure where you'd see this on an uncrystallised SIPP, but the fact they can value it properly when it matters, I suspect would mean they'd value it properly if you wanted to take tax free cash. 

Does multiplying clean by the index ratio get you the dirty price?  I thought maybe you need to factor in the accrued interest on top, although this will be a very small amount of the difference between clean and dirty on an ILG.  You could also take the dirty price from Tradeweb, which I think is what DMO refers you to for prices.

You do need to add in the accrued interest, but numerically it's very small compared to the indexation. 

Here to scale you can see the current position with the 3 month laggers. The official prices for yesterday's end of trading (clean, indexation and accrued interest) are available on tradeweb at noon today. Interactive Investor want to calculate the market value of the index linked gilt as the green column only, but it should include the white column (indexation) and red column (accrued interest).

For T27 for example it means that Interactive Investor are valuing at roughly half of it's actual market value. It's like they are valuing two bananas at the price of one banana, but are claiming as there is a banana price factored into their calculation their market valuation of the two bananas as being the cost of one banana is correct.

"within our terms and conditions, we state that we will value bananas using a price feed that we reasonably determine from independent banana providers or dealers in bananas, and hence we are entitled to value two bananas as the price for one banana because we have incorporated the official banana price, set out in the Banana Act 2004, into our calculations".

If Interactive Investor were to use just the clean price with indexation (green plus white columns) to value the index linked gilts and apply the 25% to that, then from a practical prospective that's fair enough in my opinion. But to use only the clean price is completely bananas.