FT: Gilts are becoming munis and no-one seems to have noticed
Posted: March 17th, 2023, 9:48 pm
I enjoyed this article in part because of the usual irreverent Alphaville tone, but also because of confirmation bias, being a recent convert to using index-linked gilts as a way to minimise taxable interest earned especially in the recent relatively high interest rate environment
https://www.ft.com/content/c0eb7baf-9e7 ... bb0d6a2180
Numbers I found interesting (these are quotes, approximately, not my words):
Pick the wrong five-year gilt? You’ll get a sub-2% annualised TEY.
Pick the right one and you lock in close to 6% annualised TEY!
[TEY= Tax Equivalent Yield according to whether you're BR, HR or AR tax payer as seen in many helpful calculations here in LF]
UK households represent around 0.18% of the gilts market [this I understand, it is a steep learning curve for a retail investor]
It concludes
"Will the retail bid fill the void [when pension funds vacate the gilt market in the coming years]? Probably not. Will the tax system change to correct for this weirdness [that there is no CGT on gilts]? I think it probably should, but I understand that doing so is complex and that the prize is small [the article calculates the HMRC take is only max. £0.1bn pa] — for now."
gpadsa
https://www.ft.com/content/c0eb7baf-9e7 ... bb0d6a2180
Numbers I found interesting (these are quotes, approximately, not my words):
Pick the wrong five-year gilt? You’ll get a sub-2% annualised TEY.
Pick the right one and you lock in close to 6% annualised TEY!
[TEY= Tax Equivalent Yield according to whether you're BR, HR or AR tax payer as seen in many helpful calculations here in LF]
UK households represent around 0.18% of the gilts market [this I understand, it is a steep learning curve for a retail investor]
It concludes
"Will the retail bid fill the void [when pension funds vacate the gilt market in the coming years]? Probably not. Will the tax system change to correct for this weirdness [that there is no CGT on gilts]? I think it probably should, but I understand that doing so is complex and that the prize is small [the article calculates the HMRC take is only max. £0.1bn pa] — for now."
gpadsa