holding index-linked gilts to maturity

[Kantwebefriends]

I'm tempted to buy one or two ILGs in a General Investment Account. In a later tax year I might want to Bed-and-ISA it/them.

Do any platforms stand out as the best places to do this, where "best" is some combination of good service and low cost?

[mc2fool]

Well, as gilts are free of capital gains tax that removes one potential reason for ISAing them, and while the coupons are still potentially liable for tax, they do qualify for the savings interest allowance (currently £1000pa), and, of course, you can choose low coupon ones anyway, getting most of your return from tax-free capital gain.

I bought some gilts through ii (Interactive Investor) a few months back. Did it online and for their standard dealing fee of £5.99. Don't have any other recent experiences to compare.

[GeoffF100]

There are plenty of index linked gilts with coupons of 0.125%. You do not pay much tax on them. New style index linked gilts (most of them nowadays) have to be dealt over the telephone.

[formoverfunction]

Qualifying corporate bonds:

https://www.gov.uk/hmrc-internal-manual ... al/cg53702

This useful at all. I picked up via discussion on https://www.europeanhighyield.online/

I haven't had a look through it yet, but I believe it provides detail about the treatment of capital gains on index-linked gilts and other Qualifying Corporate Bonds.

I am pretty sure f you asked for an explanation on European High Yield someone might provide an answer.

[air04]

I have been using youinvest AJ Bell many times for ILG. Service on phone only, but costs £9.95 as it is cannot be traded online.

I would not bother BedAndISA it, as the costs may be more than the benefits. Of you buy a ILG with 0.125% income, then the income and its tax is negligible. And gains(including inflation related) are tax free.

I have not done BedAndISA with youinvest.

[hind]

Would a ILG etf like INXG qualify for being cgt exempt ?

https://www.ishares.com/uk/individual/e ... -ucits-etf

[Gan020]

Would a ILG etf like INXG qualify for being cgt exempt ?

https://www.ishares.com/uk/individual/e ... -ucits-etf

No, ETF's are subject to both income tax and capital gains tax

[hind]

Thank you Gan020

[mc2fool]

There are plenty of index linked gilts with coupons of 0.125%. You do not pay much tax on them. New style index linked gilts (most of them nowadays) have to be dealt over the telephone.

Thought I'd take a look at these. Yes, plenty but, from Tradeweb's list at least, it's basically one a year for the next 50 years, so if you're looking for ones that'll mature in any specific year then you have a choice of one.

And most are above par; I'm assuming that Tradeweb's clear price is unindexed, and the dirty price is both indexed and includes accrued interest, yes?

But how is the yield calculated for linkers?

E.g. Tradeweb has TG36 1/8% IDX-LKD TREASURY GILT 2036 (GB00BYZW3J87, BYZW3J8) with a clean price of 98.900, a dirty price of 137.964584 and a yield of 0.207088. Hardly enticing on the surface, but then with indexing ....

I note also that it looks to have quite a wide spread, at Bid 97.39 / Offer 100.19. Is that typical of linkers, or just that one? (TG39 and TR46 have similar spreads, but I haven't checked any others...)

Also, you say they have to be dealt over the phone; I take it that's somehow inherent. Certainly if I stick TG36 into ii it says it's only available for telephone dealing (and I assume they'll charge their £49 phone dealing fee). If I try the same with IWeb it recognises it but on trying to put in the order it says there's been an error and I should phone customer services. I assume that if I do they'll be able to buy it for me ... and with IWeb the telephone dealing charge is the same as the online one, at just a fiver. Ever tried?

[GeoffF100]

But how is the yield calculated for linkers?

E.g. Tradeweb has TG36 1/8% IDX-LKD TREASURY GILT 2036 (GB00BYZW3J87, BYZW3J8) with a clean price of 98.900, a dirty price of 137.964584 and a yield of 0.207088.

The rough and ready answer is that in today's money, you gain 1.1% over the next 13 years, and get a coupon of 0.125%, all uprated by RPI until 2030 and CPIH after that. You will find a precise answer here:

https://www.dmo.gov.uk/media/0ltegugd/i ... mment-text

Here is a price chart:

https://www.advfn.com/stock-market/london/TG36/chart

I note also that it looks to have quite a wide spread, at Bid 97.39 / Offer 100.19. Is that typical of linkers, or just that one?

It is not typical of that one or any other. I have always got well within the quoted spread.

Also, you say they have to be dealt over the phone; I take it that's somehow inherent. Certainly if I stick TG36 into ii it says it's only available for telephone dealing (and I assume they'll charge their £49 phone dealing fee). If I try the same with IWeb it recognises it but on trying to put in the order it says there's been an error and I should phone customer services. I assume that if I do they'll be able to buy it for me ... and with IWeb the telephone dealing charge is the same as the online one, at just a fiver. Ever tried?

iWeb's dealers have to phone a market maker, and I have been told that "they have to be traded over the phone". I have traded them many times with both iWeb and AJ Bell. Spread has been typically + or - 0.25% on a £50K trade, but my last buy order in December was nearer to +0.5%. Hopefully that was a one off. The price went up after I had bought, so I did not do too badly.

[mc2fool]

But how is the yield calculated for linkers?

E.g. Tradeweb has TG36 1/8% IDX-LKD TREASURY GILT 2036 (GB00BYZW3J87, BYZW3J8) with a clean price of 98.900, a dirty price of 137.964584 and a yield of 0.207088.

The rough and ready answer is that in today's money, you gain 1.1% over the next 13 years, and get a coupon of 0.125%, all uprated by RPI until 2030 and CPIH after that. You will find a precise answer here:

https://www.dmo.gov.uk/media/0ltegugd/i ... mment-text

Ok, thanks for the link, I'll go absorb that. However, I knew the rough and ready answer as to the monetary returns but neither that nor the linked-to doc tells me how the yield is arrived at.

I've tried putting into XIRR an expenditure today of 98.9, a coupon of 0.125 every 22-Nov, and a return of 100 plus final coupon on 22-Nov-36 and I get 0.210566%, not 0.207088.

Setting the buy price to the current dirty price but adjusting the coupons by the current indexed clean price (current dirty price - accrued interest*) and the capital return to current indexed clean price * (100/98.9) gets me an XIRR of 0.206784%, which is pretty close but still ... I'm not sure I'm not missing something....

EDIT -- ah, possibly that coupons are paid six monthly .... let me recalculate!

* I am assuming that the Tradeweb Accrued Interest amount, 0.070292, is an indexed amount, as there are 144 days since the last 22-Nov and 0.125 * 144/365 = 0.049315

[mc2fool]

I've tried putting into XIRR an expenditure today of 98.9, a coupon of 0.125 every 22-Nov, and a return of 100 plus final coupon on 22-Nov-36 and I get 0.210566%, not 0.207088.
:
EDIT -- ah, possibly that coupons are paid six monthly .... let me recalculate!

Ok, going six monthly and adding in the unindexed accrued interest to the buy price now gets me an XIRR of 0.206960% and I think I'm going to put the difference between that and Tradeweb's 0.207088% down to rounding errors.

So, it seems that the answer to my question, how is the yield calculated for linkers?, is that it's done on unindexed nominal values, i.e. as if inflation were (always and forever) zero....yes?

[GeoffF100]

I've tried putting into XIRR an expenditure today of 98.9, a coupon of 0.125 every 22-Nov, and a return of 100 plus final coupon on 22-Nov-36 and I get 0.210566%, not 0.207088.
:
EDIT -- ah, possibly that coupons are paid six monthly .... let me recalculate!

Ok, going six monthly and adding in the unindexed accrued interest to the buy price now gets me an XIRR of 0.206960% and I think I'm going to put the difference between that and Tradeweb's 0.207088% down to rounding errors.

So, it seems that the answer to my question, how is the yield calculated for linkers?, is that it's done on unindexed nominal values, i.e. as if inflation were (always and forever) zero....yes?

Yes, I think so, if you are using clean prices. It is the real redemption yield. My understanding is that the rate of inflation should cancel out, when the capital value and coupon are both index linked. Nonetheless, there may be some devil in the detail. (Do not forget the 3 month time lag.) You can put various rates of inflation into your spreadsheet to gain a better understanding. The BoE uses Tradeweb's numbers, so hopefully they are right. Small differences do not alter the big picture here.

[hiriskpaul]

I've tried putting into XIRR an expenditure today of 98.9, a coupon of 0.125 every 22-Nov, and a return of 100 plus final coupon on 22-Nov-36 and I get 0.210566%, not 0.207088.
:
EDIT -- ah, possibly that coupons are paid six monthly .... let me recalculate!

Ok, going six monthly and adding in the unindexed accrued interest to the buy price now gets me an XIRR of 0.206960% and I think I'm going to put the difference between that and Tradeweb's 0.207088% down to rounding errors.

So, it seems that the answer to my question, how is the yield calculated for linkers?, is that it's done on unindexed nominal values, i.e. as if inflation were (always and forever) zero....yes?

Settlement date is 2 working days forward. Does that help?

Also, you need to consider precise coupon periods. ie each coupon period will not be precisely 182.5 days - in some periods you accrue more per day than other periods. Then there are leap years...

XIRR does not capture any of this subtlety.

[air04]

Settlement date is 2 working days forward. Does that help?

I always thought so... For Index Linked Gilts I have bought recently, the settlement seems to be the next working day.

Reading more... Gilts always had T+1 settlement!!!
https://docs.londonstockexchange.com/si ... /n0714.pdf

[hind]

Gan020 , would you know if non ILG count ie if brought TN25 0.25% at 93.3p would the gain to par 100p be tax free for a uk resident ?

[mc2fool]

Gan020 , would you know if non ILG count ie if brought TN25 0.25% at 93.3p would the gain to par 100p be tax free for a uk resident ?

Yes, all gilts are free of tax for capital gains. You will (may) still pay income tax on the 0.25% coupons though (depending on your individual tax situation).

Indeed, I bought TN25, at 91.12, during the Truss-Kwarteng inspired dip for exactly the reason that I'd get a better "cash" return than keeping the money in an equivalent-ish period savings a/c after paying 20% tax on the latter.

[hind]

Thank you mc2fool

[hiriskpaul]

Settlement date is 2 working days forward. Does that help?

I always thought so... For Index Linked Gilts I have bought recently, the settlement seems to be the next working day.

Reading more... Gilts always had T+1 settlement!!!
https://docs.londonstockexchange.com/si ... /n0714.pdf

That's curious. The gilts I bought recently (TN24) both settled T+2!

[mc2fool]

I always thought so... For Index Linked Gilts I have bought recently, the settlement seems to be the next working day.

Reading more... Gilts always had T+1 settlement!!!
https://docs.londonstockexchange.com/si ... /n0714.pdf

That's curious. The gilts I bought recently (TN24) both settled T+2!

Checking my contract notes, indeed, my buys of both TN24 & TN25 during the Truss-Kwarteng debacle period settled at T+2. That was with Interactive Investor.