Cash

cc123mm456

MSE guide to gilts (particularly for higher rate tax payers):

https://www.moneysavingexpert.com/savings/uk-gilts-lower-tax-savings/

Edit: While the MSE article lists 3 platform suggestions, I know that some forumites (myself included) prefer Scottish Widows Share Dealing for gilt holdings. The simple fee structure of £5 per trade, and zero holding fees can be attractive for longer term holding.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82084699#Comment_82084699

I think the point is that PB returns are often measured in terms of the median average, eliminating the distorting effect of the very small number of very large prizes, and the median outcome does indeed reduce with smaller holdings:

£1K: 0%

£10K: 3%

£20K: 3.13%

£30K: 3.25%

£40K: 3.25%

£50K: 3.3%

https://www.premiumbondsprizes.com/

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82084737#Comment_82084737

OK , it all depends which average you use - same as with average salaries.

DRS1

If you are a higher rate taxpayer then gilts are a great idea. 1 to 2 years is quite short term so the prices are getting close to 100 - whatever you do don't buy one with a clean price above 100.

The other thought is will you need to dip into this money in the next 1 to 2 years? It is better to hold the gilts to maturity so you know you will get 100 back in capital terms. And if you sell a small number of gilts in the interim you will pay some dealing costs (£5 say) so it is not like taking money out of an easy access savings account. Better to think of them more like fixed term bonds where you can't touch the money (even though you can) and keep anything you might want sooner in an easy access account.

markharriers

https://forums.moneysavingexpert.com/discussion/comment/82084566#Comment_82084566

I will have a read and I may come back with questions!!

friolento

Why not put £50k in Premium Bonds for a risk-free punt and the rest into a Saga 4.5% easy access account* for up to the next 12 months? No dealing charges on the way in or out, no need to get your mind round gilts, no risk of capital loss if you need quick access to your money (it's instant at Saga), tax not any worse than for gilts. If still required, review your options in 10 - 11 months' time.

* available to any UK resident aged 18+

aroominyork

I don't understand never buying a gilt priced above par/£100. If you want an unwrapped low coupon gilt that would never happen. But if you are SIPP/ISA wrapped and want the highest return for say two to three years, then TR28 paying 6% and priced over £103 might fit the bill (even if today it doesn't have the best YTM compared to similar duration gilts).

masonic

https://forums.moneysavingexpert.com/discussion/comment/82085036#Comment_82085036

For Premium Bonds the median outcome will be worse, but you'd pay no tax on that worse outcome, and will have nothing to declare to HMRC. For a holding period of 12 months, the easy access savings account will give 2.7% net interest assuming PSA is bust, so that's even worse, and in both cases TG27 gives a better net return even allowing for a dealing charge on the way in.

https://forums.moneysavingexpert.com/discussion/comment/82085085#Comment_82085085

We perhaps need an expression like "letting the tax tail wag the dog" for valuation and coupon.

In general, arguments around capital loss could be compared to the analogous situation with breaking a cash ISA fix, except you don't always get penalised with gilts. Even then, I would not voluntarily put myself in the position where I rely on cashing in early.

Usual principle of working out the net total return holds.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82085085#Comment_82085085

We aren't talking about money held in an ISA or a pension. By all means hold a high coupon gilt in an ISA or pension if the figures work.

The attraction of the low coupon low priced gilt (where the return is mostly capital gain) is that you don't pay CGT on the capital gain. If you buy something priced at 103 then you are not going to make a capital gain at maturity you are going to make a loss. And what is worse you won't be able to set that loss against any gains on which you pay CGT.

Sure you could take a total return approach (higher income offsetting the reduced capital gain) but buying a high coupon gilt outside an ISA or pension when you are a 40% taxpayer is not that good an idea.

The real problem the OP would face is that the low coupon conventional gilts are a reducing pool so there aren't that many to buy and a lot of higher rate taxpayers may be jumping (or have already jumped) on the same bandwagon. There are more of them in the index linked gilt pool but those are different animals - not so easy to compare to a savings account.

aroominyork

DRS1, you wrote "whatever you do don't buy one with a clean price above 100." That suggests anything under par is good to buy, which is not the case; a two year gilt priced at £99 isn't giving you much of a tax benefit. What is wanted is the lowest possible coupon that suits your duration and hence the lowest price.