Trading Treasury Bills through Freetrade

[Gordon51]

I’ve seen a number of mentions in the media in the last week or so about Freetrade’s move to let customers buy UK Treasury Bills. Although I’ve traded UK gilts recently, and have a decent understanding of them, I know little about UK bills and wonder if they are worth considering for any short term cash held outside a tax wrapper. . I’d be interested in any thoughts from posters with knowledge of this area.

[mc2fool]

No knowledge or experience but a few things to note from https://freetrade.io/uk-treasury

1. They're only offering the 28 day ones.
2. It's only primary market purchases in the weekly tender on Fridays and you have to get your order in by 4:30pm the day before.
3. "you will not know exactly what yield you will receive until after you have made your investment and committed your money for a month"
4. Freetrade may only get a partial fill in the tender or none at all, and you won't know how much (if any at all) you'll get of your order until afterwards.
5. There's no secondary market trading, which means you can't get rid of them before maturity.
6. Although they're 28 day bills, if you're not auto-reinvesting "your money may be tied up for 31 days or more"
7. "After 6 April 2024 there will be a fee for UK Treasury bills. We will give you further information about the fee well in advance of this date."
8. "The yield on UK Treasury bills is taxed as savings and investments income, not as capital gains, because they are considered deeply discounted securities (DDS)."

On the last point, I'd think that the gain on them would be "savings income" (i.e. interest) rather than "investments income" (dividends), but I can't find any confirmation of that either on a general google, or from the HMRC Internal manual section on the matter, or in the chapter of the referenced legislation. I did find a thread in the HMRC forums but that just says the gain is taxed as income and refers to the same manual section.

Given that the Freetrade page is talking about AERs around 5.15% and you can get that from instant access savings accounts (and without having to tie up your money for a month), I'm not sure I see the utility of the Treasury Bills. At least in an unsheltered a/c. Within a stocks & shares ISA there might be some point in them, e.g. as an interest bearing store for dividends pending getting enough of them to make a stock purchase worthwhile, but the Freetrade page doesn't mention ISAs (or SIPPs) at all, so it's not clear if they're eligible for them.

[Gordon51]

Thanks mc2. Re.your (h) it’s a pretty important point but like you I’ve looked unsuccessfully for clarification in HMRC guidance. I’d have expected Freeserve to have said something about it but I think I read somewhere on their website that they advised investors to check the situation themselves !

However I think it’s probably academic as like you I don’t see much advantage in the bills given current savings rates - except perhaps that the cash would be available after a month with a yield slightly above most 30 day savings accounts. The difference though is small and likely to be nullified when Freeserve start charging for the service.

[mc2fool]

Ok, a little more googling finds the gain on them is, indeed, taxed as savings income (interest).

"A security is issued at a discount if the amount payable on redemption exceeds the issue price. The profits on disposal of deeply discounted securities (DDS) are chargeable to income tax rather than capital gains tax. An income tax profit arises where the discount exceeds a specified proportion of the amount payable on redemption. Losses are not usually allowable.

The profit is classed as savings income for the income tax calculation, and so the savings income tax rates apply, including the starting rate for savings and the savings nil rate band. See the Taxation of savings income guidance note for details." https://www.lexisnexis.co.uk/tolley/tax/guidance/deeply-discounted-securities

And the self assessment Additional information form (SA101) has a section on the first page for "Interest from gilt-edged and other UK securities, deeply discounted securities and accrued income profits". https://assets.publishing.service.gov.uk/media/642be9ecddf8ad0013ac0cc3/SA101_2023.pdf

[bluedonkey]

As an aside, this link explains how gilts are exempted from CGT. If it's not on the list, it's not exempt. Treasury Bills aren't on here.

https://www.gov.uk/guidance/gilt-edged- ... -gains-tax

[mc2fool]

As an aside, this link explains how gilts are exempted from CGT. If it's not on the list, it's not exempt. Treasury Bills aren't on here.

https://www.gov.uk/guidance/gilt-edged- ... -gains-tax

That's because Treasury Bills aren't gilts, so no conclusion can be drawn from them not being on that list.

As already referenced, there is no CGT on Treasury Bills, the gain is taxed as income.

[bluedonkey]

As an aside, this link explains how gilts are exempted from CGT. If it's not on the list, it's not exempt. Treasury Bills aren't on here.

https://www.gov.uk/guidance/gilt-edged- ... -gains-tax

That's because Treasury Bills aren't gilts, so no conclusion can be drawn from them not being on that list.

As already referenced, there is no CGT on Treasury Bills, the gain is taxed as income.

Yes, your post covered it comprehensively. My post was more for myself, to clarify why gilts even when issued at a deep discount do not come within the deep discounted securities legislation.

[formoverfunction]

Slightly off topic, but you can now access UK Treasury Bills through Freetrade:

https://freetrade.io/uk-treasury

The app is available in Apple store I discovered. It's not so obvious from their site and I am always a bit uncomfortable using QR codes.

[mc2fool]

Slightly off topic, but you can now access UK Treasury Bills through Freetrade:

Should have gone to SpecSavers, mate!

[formoverfunction]

My point was that it's not a comment on the technical nature of trading treasury bills, but the user experience of the site.

Hence slightly off subject.

If you start to explore it, it gives the impression, well it did for me, that you have to download the app by using the QR code. My tracker blocking software shows that link as being on multiple anti-tracker databases.

There is a privacy report in the Apple app store and user experience comments.

Overall I think it's an interesting concept that I'm going to keep an eye on.

As others have posted, and is also questioned on the site's user area , there's multiple questions on the tax issue and some commentary suggesting that it might be possible to hold these in a tax wrapper sooner rather than later.

So instead of a trip to Specsavers, I was trying to make a trip to Freetrade but not via the QR codes.

It appears more charges will come in later in the year for this service.