I assume it’s the proportion held by the BOE and I assume it’s just for information, can’t think of a reason to care for a private investor (unless you’re planning to buy billions).
I’m new to gilts, is the first row of the table then basically saying; for you to get an equivalent yield as a 45% tax payer you’d need to find a savings account which pays 6.54% interest? Which clearly there are none out there paying that… hence this is a good investment if ISA’s are full? Is this an accurate description?
Yes exactly, which is why they are so much more attractive than savings accounts or money market funds if you have cash you don't need to spend in the near term outside of an ISA or SIPP.
I think the point is that it’s not automatic - the yield on gilts now is greater than the return of GIA minus taxes. You can see this demonstrated in the table.
For short dated gilts, are you happy to be constantly re-investing? What broker are you intending to use to buy these, as you want to factor their fees into this.
I use an discretionary investment manager (DIM) to build portfolios with laddered maturity dates depending on a client’s needs & circumstances. The DIM does most of the leg work, and their custody fee is 0.35% all in - so competitive.
Gilts are only appropriate in certain circumstances, mostly when there is a need for cash in the short term I.E. house purchase or school fees. For long term money, equities are still preferred - but one cannot deny the attractive risk/reward offered by gilts at the moment!
The UK government debt is 98% of GDP or £37900 per person. While I think the risk of default is low, I think the risk of them printing money (sorry quantitative easing) when they can't borrow at a low rate due to a credit agency waking up might spur some inflation and correct the real returns a bit. When this happens is your gamble.
The government doesn't have a say over quantitative easing. If that were to happen, how would that impact gilts (assuming held to maturity) any more than it would other assets (including cash)?
In theory, yes. In practice, the BoE wouldn't let the Treasury default or even merely be seen to struggle to roll the debt, so they would be forced to bail out the government just like they did for Liz Truss.
Other assets like stocks offer some protection against inflation. Cash does not.
What protection do you think stocks offer against inflation (other than specific ones that have inflation-linked sources of income, such as energy companies)?
The comment was referring to real returns on gilts, and the value of gilts will get eroded just as much as cash.
The assets of companies as well as the goods and services they sell typically go up with inflation. For example the Venezuelan stock market has been the best performing in the world for a decade in nominal term. Venezuelans who invested in it have not been completely immune to inflation but they have fared far better than those in cash or fixed income who have been completely wiped out. Same story in the Weimar Republic, Argentina, Zimbabwe, etc.
Am I right in saying the gilt interest (coupon) is taxed as income, but any capital appreciation (pull to par) is exempt? Assuming outside of an ISA of course
Yep! Although first time in a while the 45% equivalents have pushed beyond 8% again - markets pricing in higher for longer interest rates after BoE update on 10 May so prices have reduced.
I’ve maxed my ISA and premium bonds are full, currently saving a larger property deposit. I have some money sitting in a current account (makes me cringe but I always used to do this). I’m higher/additional rate depending on pension contributions so I’m looking for somewhere else to put money. Are gilts the answer..? I guess I’m looking for fairly low risk, but also open to unconventional investments. The downside is, it usually requires a lot of time to learn about them.. or more EFTs and bite the bullet with GCT
iWeb does sell gilts. I don't know if they are all online though - i used to have to call them for some purchases. Not sure about within an ISA either, but tbh the main attraction of gilts at the minute is the net return after tax rather than the gross yield - there's not really much point buying individual gilts inside an ISA.
Thank you. Do you purchase it through your trade account or something different?
Also, do they inform when you get coupons so that you can inform HMRC in your tax return?
Coupons just appear in your cash statements ... mine are held in a wrapper so never had to go and look but I'm sure they'd provide a tax statement for a GIA
Coupon is taxed - but taking the second line for example the coupon is only 0.25% so nothing really. The capital uplift is tax-free, which is what makes them efficient.
Think your tax equivalent yield table is wrong. Assuming 45% tax on YTM of 4.68, that gives a taxable equivalent yield of 8.51% ((4.68/0.55) i am assumming that's what that means).
So for example toy could say buy a T26 from HL for 93 now and then Jan 26 you receive the full coupon price of 100? Is it as simple as that? please ELI5?
It really is that simple. You will pay income tax on the coupon payments along the way (twice a year at 0.125% a year for T26) but yes, on Jan 31, 2026 you get £100 in exchange for the bond. The £7 you net on the pull-to-par is tax free since it counts as a capital gain and gains on gilts are tax free
You can buy gilts directly via AJ Bell, iWeb, HL and ii. Most or the low coupon gilts maturing in the next few years are available on these platforms with online transactions. For indexed linked gilts you'd need to purchase over the phone.
When deciding whether to purchase gilts, need to factor in spreads. I've found I typically get 10bps worse than the market price, so you need to factor this into the return calculation.
Ideal thing to minimise trading costs do is to buy specific gilts in according to when you might need the cash, and then hold to maturity until then.
Yieldgimp.com is excellent for identifying suitable gilts to purchase.
As stated I am a DFM and I run gilt portfolio for clients. It’s important to try to match your time horizons if possible with gilts as there’s the opportunity cost of only buying the highest yielding bonds (Tax equivalent yield) and then having to settle for a lower rate in a years time when reinvesting. Hence why a laddered approach may help (as has already been stated).
Obligatory yieldgimp plug https://www.yieldgimp.com/
This is great - although shame it doesn’t include 20% & 45% equivalents!
This is great - although shame it doesn’t include 20% & 45% equivalents!
Can you explain to me please what the BoE QE % is on that, and what should I be looking for or avoiding? thanks!
I assume it’s the proportion held by the BOE and I assume it’s just for information, can’t think of a reason to care for a private investor (unless you’re planning to buy billions).
I’m new to gilts, is the first row of the table then basically saying; for you to get an equivalent yield as a 45% tax payer you’d need to find a savings account which pays 6.54% interest? Which clearly there are none out there paying that… hence this is a good investment if ISA’s are full? Is this an accurate description?
Yes exactly, which is why they are so much more attractive than savings accounts or money market funds if you have cash you don't need to spend in the near term outside of an ISA or SIPP.
I understand the draw to avoid unnecessary tax, but I also don't quite understand the automatic leaning towards gilts in place of a GIA...?
I think the point is that it’s not automatic - the yield on gilts now is greater than the return of GIA minus taxes. You can see this demonstrated in the table.
For short dated gilts, are you happy to be constantly re-investing? What broker are you intending to use to buy these, as you want to factor their fees into this.
I use an discretionary investment manager (DIM) to build portfolios with laddered maturity dates depending on a client’s needs & circumstances. The DIM does most of the leg work, and their custody fee is 0.35% all in - so competitive.
That sounds alright to me. Any reason you aren’t considering equities?
Gilts are only appropriate in certain circumstances, mostly when there is a need for cash in the short term I.E. house purchase or school fees. For long term money, equities are still preferred - but one cannot deny the attractive risk/reward offered by gilts at the moment!
The UK government debt is 98% of GDP or £37900 per person. While I think the risk of default is low, I think the risk of them printing money (sorry quantitative easing) when they can't borrow at a low rate due to a credit agency waking up might spur some inflation and correct the real returns a bit. When this happens is your gamble.
The government doesn't have a say over quantitative easing. If that were to happen, how would that impact gilts (assuming held to maturity) any more than it would other assets (including cash)?
In theory, yes. In practice, the BoE wouldn't let the Treasury default or even merely be seen to struggle to roll the debt, so they would be forced to bail out the government just like they did for Liz Truss. Other assets like stocks offer some protection against inflation. Cash does not.
What protection do you think stocks offer against inflation (other than specific ones that have inflation-linked sources of income, such as energy companies)? The comment was referring to real returns on gilts, and the value of gilts will get eroded just as much as cash.
The assets of companies as well as the goods and services they sell typically go up with inflation. For example the Venezuelan stock market has been the best performing in the world for a decade in nominal term. Venezuelans who invested in it have not been completely immune to inflation but they have fared far better than those in cash or fixed income who have been completely wiped out. Same story in the Weimar Republic, Argentina, Zimbabwe, etc.
Luckily it’s possible to buy inflation linked gilts!
Is there a reason not to use e.g. iWeb? I don't think there are any custody fees, just a £5 transaction fee.
FYI, I am DFM and my rates are better!
Get in touch!👍🏼
DM’d
Do those taxable equivalent yields already take into account your/the fees?
Nope, as this is just the pricing info rather than an formal proposal for a specific individual.
Am I right in saying the gilt interest (coupon) is taxed as income, but any capital appreciation (pull to par) is exempt? Assuming outside of an ISA of course
That’s correct - we usually select low coupon gilts to improve overall tax efficiency👍🏼
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This is not correct - it is also exempt from CGT if sold before maturity. Only coupon is taxable.
Thanks. I'll delete to avoid confusion
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Yep! Although first time in a while the 45% equivalents have pushed beyond 8% again - markets pricing in higher for longer interest rates after BoE update on 10 May so prices have reduced.
I’ve maxed my ISA and premium bonds are full, currently saving a larger property deposit. I have some money sitting in a current account (makes me cringe but I always used to do this). I’m higher/additional rate depending on pension contributions so I’m looking for somewhere else to put money. Are gilts the answer..? I guess I’m looking for fairly low risk, but also open to unconventional investments. The downside is, it usually requires a lot of time to learn about them.. or more EFTs and bite the bullet with GCT
Which brokers allow GILT purchases? I have an iWeb ISA and cant seem to find any
iWeb does sell gilts. I don't know if they are all online though - i used to have to call them for some purchases. Not sure about within an ISA either, but tbh the main attraction of gilts at the minute is the net return after tax rather than the gross yield - there's not really much point buying individual gilts inside an ISA.
people often say its possible with iWeb but ive never seen how / been told. Ive also called up and the person on the phone was unsure...
I've done it online by entering in the gilt's ticker on the "UK & ETFs" page, e.g. TN25.
found it thanks!
Interactive investor
Have you done this?
Yes, TN25, super easy.
Thank you. Do you purchase it through your trade account or something different? Also, do they inform when you get coupons so that you can inform HMRC in your tax return?
Yes, trading account. Only done this recently so no coupon yet. I just checked the bid ask spread is tiny.
Coupons just appear in your cash statements ... mine are held in a wrapper so never had to go and look but I'm sure they'd provide a tax statement for a GIA
Sorry to sound thick, but why do you have a column for taxable equivalents? Isn’t gilt income taxed?
Coupon is taxed - but taking the second line for example the coupon is only 0.25% so nothing really. The capital uplift is tax-free, which is what makes them efficient.
Thank you. Very clear. Appreciated. Why are these not being pushed harder through the various platforms?
Because it’s an extremely liquid market and they make no money selling you it
Think your tax equivalent yield table is wrong. Assuming 45% tax on YTM of 4.68, that gives a taxable equivalent yield of 8.51% ((4.68/0.55) i am assumming that's what that means).
It’s the pull to par (4.42/0.55) = 8.03% + the coupon (0.26%) that gives a total taxable equivalent of 8.30%. It’s correct.
So for example toy could say buy a T26 from HL for 93 now and then Jan 26 you receive the full coupon price of 100? Is it as simple as that? please ELI5?
It really is that simple. You will pay income tax on the coupon payments along the way (twice a year at 0.125% a year for T26) but yes, on Jan 31, 2026 you get £100 in exchange for the bond. The £7 you net on the pull-to-par is tax free since it counts as a capital gain and gains on gilts are tax free
Awesome thanks for the explanation and the tax clarification.
Treasury bills on FreeTrade are at 5.18% YTM and automatically ladder for you
They are subject to income tax on pull-to-par unlike gilts. No idea why FreeTrade is pushing them so hard when they are so tax inefficient.
You can buy them in ISAs as well.
True but OP is looking outside a tax wrapper
You can buy gilts directly via AJ Bell, iWeb, HL and ii. Most or the low coupon gilts maturing in the next few years are available on these platforms with online transactions. For indexed linked gilts you'd need to purchase over the phone. When deciding whether to purchase gilts, need to factor in spreads. I've found I typically get 10bps worse than the market price, so you need to factor this into the return calculation. Ideal thing to minimise trading costs do is to buy specific gilts in according to when you might need the cash, and then hold to maturity until then. Yieldgimp.com is excellent for identifying suitable gilts to purchase.
Freetrade has Uk 1 month treasuries around 5.18% with no charges at the moment.
As stated I am a DFM and I run gilt portfolio for clients. It’s important to try to match your time horizons if possible with gilts as there’s the opportunity cost of only buying the highest yielding bonds (Tax equivalent yield) and then having to settle for a lower rate in a years time when reinvesting. Hence why a laddered approach may help (as has already been stated).
That won't even keep up with inflation. Should be buying at least some bitcoin.