New to Gilts. I have a few questions before buying.

necronom

I discovered gilts yesterday, so I've been doing a bit of research on them.  They seem too good to be true, so I want to check with people who have bought them to see if I'm missing something.

I pay tax on my bank interest and have quite a bit of money in bank accounts.  My current plan is to buy about £80,000 of gilts at 0% coupon with a low price then sell at maturity to make a massive profit with no tax.

I've looked at the Hargreaves Lansdown site and can see a a Treasury gilt that costs about £82 at 0% coupon with a maturity of Dec 2029 [edit] 2027.  Am I right in assuming that I can buy 1000 of these for about £82,000 and then in just over 2 years I will get £100,000 back, with no risk apart from if the whole of the UK government collapsed financially and they don't pay them back (which has never happened)?

I've heard about the bond/gilt marked being in crisis, and that prices can go down, but if I leave them to mature I'm not affected by all that, I think.  I buy at 82 and sell at 100 regardless of what happens.

With the HL site I think I need to make an account, transfer money to it, then phone them for this one (it says no online buying for the 0% gilts I've seen on there).  What do I need to know before phoning them, and why do I need to phone for these?  Are they much more complicated?

Would it be a 'HL Fund and Share Account' I open?

ColdIron

Lesson No1: It's gilts not guilts

MyRealNameToo

May want to call them gilts, guilts are something very different and not something you can exactly invest in. 

UK defaulted in 1932, arguably twice if you count the arbitrary changing of the coupon rate on the 1917 "war loan" gilts. 

necronom

    Yes, Gilts.  I did know that, but continued to spell it wrong!  I've edited it now.

jifmoose

One thing to bear in mind: as far as I know, 0% coupon gilts (aka "strip" gilts) are liable for tax on the gains. Gains on gilts with low coupon are tax free: you pay tax on the coupon, but this can be a very small component - but 0% stripped gilts are a derivative of sorts and have different rules.

Edit: wanted to find a source to check this, here it is from the horse's (HMRC's) mouth: https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim3130. Strips are "deeply discounted securities".

MyRealNameToo

https://www.gov.uk/guidance/gilt-edged-securities-exempt-from-capital-gains-tax lists the gilts that are exempt from CGT, there arent any 0% 2029 gilts listed

necronom

Thanks.  I hadn't heard about the difference on the videos I'd watched.
So something like TR29 might be better: 0.875% 22 October 2029 £88.750
That way it's easier to buy, and I still get about £11 gain per gilt at maturity and only lose 20% of the 0.875 coupon.  Still much better than a bank account.

InvesterJones

necronom said:

  My current plan is to buy about £80,000 of gilts at 0% coupon with a low price then sell at maturity to make a massive profit with no tax.

TR29, if you reinvested coupons, would return the equivalent of 3.89% annualised all in, gross. If that counts as massive profit to you then great. I also think gilts are great, but with inflation at 3.8% currently, it's only treading water, not making massive profit IMHO.

necronom

I must be misunderstanding, as I thought the TR29 one would give close to 10%, as I'd make £11 per gilt, would gain a bit from the coupon amount, then lose a bit on charges.

jifmoose

Ah the key thing here is "annualised" - yes, you get back £11 per gilt, but only in Oct 2029. So you need to consider this is the gain over four years or so.

Linton

MyRealNameToo said:

May want to call them gilts, guilts are something very different and not something you can exactly invest in. 

UK defaulted in 1932, arguably twice if you count the arbitrary changing of the coupon rate on the 1917 "war loan" gilts. 

UK cannot default on gilts now since it is a fiat currency.  It can always pay back £ debts. How much the £ is worth is another matter. Prior to 1931 it was on the gold standard and so could default if it did not have enough gold. But this never happened.

A quick Google tells me the 1932 default was on a US loan, not a gilt.  It also tells me that England (the UK did not exist at the time) did default in 1672