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

michaels

leosayer said:

kempiejon said:

michaels said:

I assume no one else is thinking this sounds like a potential inheritance tax dodge....

I thought it, now it seems to have leaked out.

Seems like tax evasion to me, if you are aware that your platform undervalues IL gilts.

Sounds like a tricky one to prove - although I guess if you rebalanced in to the worst offending linkers the day after a terminal diagnosis it might be a bit suspicious - if anyone looked.....

Lowtrawler

Hoenir said:

Charle Stanley are stockbrokers ( members of the London Stock Exchange)  who can deal directly on the market. Correspondingly platforms are not.  

If you buy an orange it's never going to be an Apple. No amount of complaining can change rudimentary facts. 

At the end of the day, it will boil down to whether the Ombudsman accepts that the clean price is a suitable market price. The legislation requires assets to be valued at market price on key events. In a world where the dirty price can be more than double the clean and transactions are always made at the dirty price, I will be surprised if the Ombudsman sides with the platforms.

It is only on key valuation events this matters - such as taking the PCLS or valuation on probate. The platforms have access to the conversion table published by the DMO each day at noon which would allow them to convert the clean to dirty price for valuation events. They choose not to do so.

It is now in the hands of the Ombudsman and I will let everyone know when they reach a conclusion.

DRS1

Am I the only one who thinks, if they lose, ii may decide that ILGs are not suitable investments for SIPPS?

Hoenir

DRS1 said:

Am I the only one who thinks, if they lose, ii may decide that ILGs are not suitable investments for SIPPS?

I'm in agreement this may well be the case. Individual ILG's were created for pension funds, i.e. liability matching. Long term holdings. Not an instrument to be actively traded by individual's. 

The investment in software to perform the neccessary calculations probably isn't economic. ILG's may well prove just to be another passing fad in time. 



 

hara____

Thanks for the very helpful warning that this thread provides to the rest of us. I knew many platforms showed the valuation per the clean price but hadn't realised it would affect the tax calculation. I'm also surprised AJ Bell don't do any better as I thought they were one of the few to show the dirty price for valuations.

If you do need to take the pragmatic step of switching to an ETF or fund (at least temporarily) you may not want to take the risk of holding the longer durations of GILI or INXG. An alternative would be this iShares fund of linkers up to 10 years. The duration is 5 years: https://www.ii.co.uk/funds/ishares-up-to-10yrsidxlnkdgltidxukdacc/BN091H1

squirrelpie

Hoenir said:

DRS1 said:

Am I the only one who thinks, if they lose, ii may decide that ILGs are not suitable investments for SIPPS?

I'm in agreement this may well be the case. Individual ILG's were created for pension funds, i.e. liability matching. Long term holdings. Not an instrument to be actively traded by individual's.
The investment in software to perform the neccessary calculations probably isn't economic. ILG's may well prove just to be another passing fad in time.

I don't actively trade the investments in my SIPP, and especially wouldn't expect to actively trade ILGs if I held any. I'd expect to hold them for the same reason pension funds might hold them on my behalf.

I think excluding just one special case of exchange-traded instruments because it was 'too difficult' might not be a good advertisement for a platform!

Hoenir

squirrelpie said:

Hoenir said:

DRS1 said:

Am I the only one who thinks, if they lose, ii may decide that ILGs are not suitable investments for SIPPS?

I'm in agreement this may well be the case. Individual ILG's were created for pension funds, i.e. liability matching. Long term holdings. Not an instrument to be actively traded by individual's.
The investment in software to perform the neccessary calculations probably isn't economic. ILG's may well prove just to be another passing fad in time.

I don't actively trade the investments in my SIPP, and especially wouldn't expect to actively trade ILGs if I held any. I'd expect to hold them for the same reason pension funds might hold them on my behalf.

I think excluding just one special case of exchange-traded instruments because it was 'too difficult' might not be a good advertisement for a platform!

There's a surprising number of listed investments that actually off limits as considered too opaque/complex for retail investor's to trade. The issue with ILG's is the real time price calculation. One suspects that once RPI becomes redundant and what is effectively CPIH is used instead. That interest may naturally diminish somewhat. Many retail investors got caught out in 2022 ( INXG ETF being a good benchmark).  Found that ILG's weren't as risk free as thought. 

End of the day you'll get the level of service that you pay for. 

Lowtrawler

Hoenir said:

There's a surprising number of listed investments that actually off limits as considered too opaque/complex for retail investor's to trade. The issue with ILG's is the real time price calculation. One suspects that once RPI becomes redundant and what is effectively CPIH is used instead. That interest may naturally diminish somewhat. 

We can have any number of discussions about use of ILG's. This discussion is specifically about how they are being valued when claiming the PCLS. Valuing them at the clean price will always cost holders money which is why I have asked the Ombudsman to look into it.

I'm sure there will be many holders who have not spotted the impact and have either suffered detriment or will suffer detriment if the Ombudsman does not intervene. As I am aware of the situation, I can take corrective action to limit the impact. To me, this is a black and white case. Either the Ombudsman considers the clean price to be a suitable market value or they do not. If they consider it to be a suitable market value, all holders when claiming the PCLS will be disadvantaged with the blessing of the Ombudsman.

hara____

Lowtrawler - building on Snowman's useful chart of clean and dirty prices, how closely could you approximate your ladder using only those gilts with the lower index ratios, e.g. T33, TR35, TR45, TR49?

Still a pain to do of course, but worth considering as a workaround to minimise the impact of ii's stance.

Lowtrawler

hara____ said:

Lowtrawler - building on Snowman's useful chart of clean and dirty prices, how closely could you approximate your ladder using only those gilts with the lower index ratios, e.g. T33, TR35, TR45, TR49?

Still a pain to do of course, but worth considering as a workaround to minimise the impact of ii's stance.

As I already have my ladder in place, it won't help me. My choices are either to move my SIPP in specie to Charles Stanley (if I confirm they will price the PCLS correctly) or sell my ladder when taking the PCLS, buying it back after.

I reckon with trading costs and spread, the sale and buy-back will cost me in the region of £1k while also subjecting me to market risk. Moving to CS will cost me an extra £30 per month and so I would likely do an in specie transfer back to ii having taken the PCLS. These are relatively small amounts and a bit of inconvenience.

My key reason for raising the issue with the Ombudsman is other holders may not have noticed the detrimental pricing impact and could be disadvantaged by many thousands. In my case, had I failed to notice, the impact would have been a reduction in my PCLS of around £15k and consequential additional tax of £6k.