Looking for best 1 year fixed rate bond/ gilt

itsme999

https://forums.moneysavingexpert.com/discussion/comment/82085245#Comment_82085245

I pay 40% tax

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82085248#Comment_82085248

So your best return after tax is probably a gilt like TG27.

itsme999

I need some help to understand the TG27:

Buy £97.24

Coupon 1.25%

Yield to maturity 4.22%

Matures date 22 July 2027

How does it work? I pay £97.24 today, government pays £100.00 in July 2027 , that's 2.8% tax free plus 1.25% coupons taxable? AM I right or there is more to it?

InvesterJones

Gross yield on TG27 is 4.293%. Paying tax on coupons (two to go, one in January, one at maturity) at 40% results in a net yield of 3.771% (actually a tiny bit less if you don't reinvest the coupons) - but still far more than the net interest of any 1-year fixed saving account.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82085261#Comment_82085261

Pretty much, but because you only paid £97.24 for each unit, you get 1.25% / 0.9724 = 1.29% in taxable coupons based on the price paid, since the coupon percentage is based on a £100 price.

Newbie_John

40% tax is only if your total = coupons and interests elsewhere exceed £500, the above is taxed at 40% rate.

If you decide to keep to maturity - then if gilt costs £90 you will get £100 at the maturity date tax free - so higher tax outside of ISA - look at low coupons.

Coupons are not calcualted on "cash invested" but on gilt itself, if you pick TG61 with coupon of 0.5% at price £22 - your coupon yield will be 2.5% because you're getting 5 gilts for £100.

Gilts arent like fixed accounts, you can sell anytime getting your interests back - although depending where you buy it there likley be few £ buy/sell fee and the longer term the gilt is then it may go through price rollercoaster - if BoE rates went up to 10% your gilts will massively lose on a value, if BoE rates went down to 1% they will gain a lot and pne that shows as Gross Yield 5% now could return 20% in a year. But short term ones are safer from that ride.

itsme999

Thinking ahead, where does the coupon % income is recorded in the self assessment? I do it myself, the income I enter are rent, bank interest and dividend.

masonic

https://forums.moneysavingexpert.com/discussion/comment/82085516#Comment_82085516

You will need to tailor your return to add the Other UK Income section, and you will find a section within it "Interest from gilt-edged and other UK securities, deeply discounted securities and accrued income profits". You just need to enter the total in Box 3 (gross amount before tax) and leave the other two boxes blank.

Remember to deduct the accrued income shown in your contract note from the first income payment as that income went to the previous holder as part of your purchase price.

GeoffTF

https://forums.moneysavingexpert.com/discussion/comment/82085521#Comment_82085521

You will need to account for accrued interest on purchases and sales:

https://www.gov.uk/government/publications/accrued-income-scheme-hs343-self-assessment-helpsheet/hs343-accrued-income-scheme-2024

EthicsGradient

Can anyone explain the "DMO yield" at the giltsyield.com site? For most, it's within 0.05% of the "gross yield", but for TN28 it's shown as 4.959%, with the gross yield 4.21%.

Their hover help says it's "the official Debt Management Office formula" "based on a simplified model that ensure comparability across the market". But this seems to make comparison harder. Or is the 4.959% a typo? It seems too high compare with the trend of DMO yield around it. 4.159% would seem more likely.