The Lemon Fool

Serious question… why does anyone keep money in premium bonds these days?

I pulled the entire full holdings (aside from £100 as a placeholder) for my wife and I and bought short-dated low coupon gilts. The yield is c2% higher and almost all tax free.

Other than inertia, any reason for everyone here not to do the same?

Spet0789 wrote:Serious question… why does anyone keep money in premium bonds these days?

I pulled the entire full holdings (aside from £100 as a placeholder) for my wife and I and bought short-dated low coupon gilts. The yield is c2% higher and almost all tax free.

Other than inertia, any reason for everyone here not to do the same?

In my case I drew down the next 12 months worth of expenditure from the cash in my ISA and put it into PB from which I sell 1/12th after each draw. The break even on the bonds will be if it matches the circa 2% the cash would earn in the ISA and if I win one of the big prizes I'll let you know.

Dicky99 wrote:

Spet0789 wrote:Serious question… why does anyone keep money in premium bonds these days?

I pulled the entire full holdings (aside from £100 as a placeholder) for my wife and I and bought short-dated low coupon gilts. The yield is c2% higher and almost all tax free.

Other than inertia, any reason for everyone here not to do the same?

In my case I drew down the next 12 months worth of expenditure from the cash in my ISA and put it into PB from which I sell 1/12th after each draw. The break even on the bonds will be if it matches the circa 2% the cash would earn in the ISA and if I win one of the big prizes I'll let you know.

If you’re planning to withdraw monthly then I see why it make sense but for those who keep PBs as a tax-efficient emergency fund, I don’t see how it can be better than gilts.

Tax free convenience plus the lottery element

Spet0789 wrote:Serious question… why does anyone keep money in premium bonds these days?

I pulled the entire full holdings (aside from £100 as a placeholder) for my wife and I and bought short-dated low coupon gilts. The yield is c2% higher and almost all tax free.

Other than inertia, any reason for everyone here not to do the same?

The low-coupon gilt strategy has only been worthwhile in the last year or so, and may not be viable in another year. So swapping out of PBs into them might be seen as a hassle for some. And you still have to report the interest paid for tax purposes. Plus presumably report the sale as a capital gain, albeit tax-free but still reportable, unlike PB prizes.

But for larger sums then the 50K limit on PB holdings means that many can do both at the same time. The more you have, the less that PBs really make a difference, unless you are very very lucky of course.

Spet0789 wrote:Serious question… why does anyone keep money in premium bonds these days?
I pulled the entire full holdings (aside from £100 as a placeholder) for my wife and I and bought short-dated low coupon gilts. The yield is c2% higher and almost all tax free.
Other than inertia, any reason for everyone here not to do the same?

cos you've used up your ISA & pension allowances and you're a higher rate tax payer (and no personal savings allowance)
cos PB winnings are tax free
cos you can have the funds back whenever you want
cos money with NS&I is over and above the £85k per person FSCS compensation

OK, they're hardly "sexy", but you pays your money and you makes your choice ....

but according to NS&I's annual report (https://nsandi-corporate.com/performance/annual-reports), there's £123bn held in Premium Bonds: they can't all be wrong ...

Lootman wrote:The low-coupon gilt strategy has only been worthwhile in the last year or so, and may not be viable in another year. So swapping out of PBs into them might be seen as a hassle for some. And you still have to report the interest paid for tax purposes. Plus presumably report the sale as a capital gain, albeit tax-free but still reportable, unlike PB prizes

"...profits or losses made on the disposal of gilts (including on redemption) by individual investors are not taxable and do not have to be included on the investor’s tax return..."

https://www.dmo.gov.uk/responsibilities/gilt-market/buying-selling/taxation/

mc2fool wrote:

Lootman wrote:The low-coupon gilt strategy has only been worthwhile in the last year or so, and may not be viable in another year. So swapping out of PBs into them might be seen as a hassle for some. And you still have to report the interest paid for tax purposes. Plus presumably report the sale as a capital gain, albeit tax-free but still reportable, unlike PB prizes

"...profits or losses made on the disposal of gilts (including on redemption) by individual investors are not taxable and do not have to be included on the investor’s tax return..."

https://www.dmo.gov.uk/responsibilities/gilt-market/buying-selling/taxation/

But what about the requirement to declare all disposals totalling above 50K or so, even if no CGT is owed?

If I had a gilt sale valued at (say) a million, I might feel a bit nervous not including it in my return.

Lootman wrote:

mc2fool wrote:"...profits or losses made on the disposal of gilts (including on redemption) by individual investors are not taxable and do not have to be included on the investor’s tax return..."

https://www.dmo.gov.uk/responsibilities/gilt-market/buying-selling/taxation/

But what about the requirement to declare all disposals totalling above 50K or so, even if no CGT is owed?

If I had a sale valued at (say) a million, I might feel a bit nervous not including it in my return.

Gilts aren't a chargeable asset, so I'd take the DMO at it's word when they say "do not have to be included on the investor’s tax return".

mc2fool wrote:

Lootman wrote:But what about the requirement to declare all disposals totalling above 50K or so, even if no CGT is owed?

If I had a sale valued at (say) a million, I might feel a bit nervous not including it in my return.

Gilts aren't a chargeable asset, so I'd take the DMO at it's word when they say "do not have to be included on the investor’s tax return".

Fair enough. There might be something to be said for voluntarily reporting large transactions where no tax is due, but that really is a different topic.

yorkshirelad1 wrote:

Spet0789 wrote:Serious question… why does anyone keep money in premium bonds these days?
I pulled the entire full holdings (aside from £100 as a placeholder) for my wife and I and bought short-dated low coupon gilts. The yield is c2% higher and almost all tax free.
Other than inertia, any reason for everyone here not to do the same?

cos you've used up your ISA & pension allowances and you're a higher rate tax payer (and no personal savings allowance)
cos PB winnings are tax free
cos you can have the funds back whenever you want
cos money with NS&I is over and above the £85k per person FSCS compensation

OK, they're hardly "sexy", but you pays your money and you makes your choice ....

but according to NS&I's annual report (https://nsandi-corporate.com/performance/annual-reports), there's £123bn held in Premium Bonds: they can't all be wrong ...

You’ve missed quite a few of my points here.

In order
- Cos me too (an additional rate taxpayer in fact).
- Cos the (much higher) return on low coupon gilts is tax free too, as near as makes no difference.
- Cos you can sell gilts immediately and have the money back just as fast (and without losing a month of interest)
- Cos both gilts and NS&I are the U.K. government.

So I still don’t see why anyone would have meaningful amounts in PBs. If you want the dream of a big prize, just buy gilts and spend a few quid on lottery tickets on the side.

My point is precisely that unless I am missing something, a lot of those £123bn of holders are wrong. Basically if you have a decent chunk in PBs and leave it there most of the time, you’d be better off in gilts.

Lootman wrote:

mc2fool wrote:Gilts aren't a chargeable asset, so I'd take the DMO at it's word when they say "do not have to be included on the investor’s tax return".

Fair enough. There might be something to be said for voluntarily reporting large transactions where no tax is due, but that really is a different topic.

You’ve changed your tune old chap. A couple of weeks ago you were advocating not telling your car insurer about accidents! I though you were a bluff, common-sense, my home-is-my-castle protector of individual liberties. Not someone to worry about telling HMRC about something they have explicitly said they don’t want to be told about.

Lootman wrote:

Spet0789 wrote:Serious question… why does anyone keep money in premium bonds these days?

I pulled the entire full holdings (aside from £100 as a placeholder) for my wife and I and bought short-dated low coupon gilts. The yield is c2% higher and almost all tax free.

Other than inertia, any reason for everyone here not to do the same?

The low-coupon gilt strategy has only been worthwhile in the last year or so, and may not be viable in another year. So swapping out of PBs into them might be seen as a hassle for some. And you still have to report the interest paid for tax purposes. Plus presumably report the sale as a capital gain, albeit tax-free but still reportable, unlike PB prizes.

But for larger sums then the 50K limit on PB holdings means that many can do both at the same time. The more you have, the less that PBs really make a difference, unless you are very very lucky of course.

All fair. That said, per full holding you’re probably leaving £2k on the table over the next 2 years. Feels enough to me to justify the work of one online trade and 4 money transfers.

Spet0789 wrote:

yorkshirelad1 wrote:cos you've used up your ISA & pension allowances and you're a higher rate tax payer (and no personal savings allowance)
cos PB winnings are tax free
cos you can have the funds back whenever you want
cos money with NS&I is over and above the £85k per person FSCS compensation

You’ve missed quite a few of my points here.

In order
- Cos me too (an additional rate taxpayer in fact).
- Cos the (much higher) return on low coupon gilts is tax free too, as near as makes no difference.
- Cos you can sell gilts immediately and have the money back just as fast (and without losing a month of interest)
- Cos both gilts and NS&I are the U.K. government.

So I still don’t see why anyone would have meaningful amounts in PBs. If you want the dream of a big prize, just buy gilts and spend a few quid on lottery tickets on the side.

My point is precisely that unless I am missing something, a lot of those £123bn of holders are wrong. Basically if you have a decent chunk in PBs and leave it there most of the time, you’d be better off in gilts.

Fair points but again we are only talking about £50,000 here. And if that is all you have then it is not going to make much difference.

On the other hand if you have millions then the amount in PBs is just pin money and you are probably in low-coupon gilts as well anyway.

And of course the gilt strategy only works when they trade below par, which has not been the case for most of the last 40 years.

Personally I would be more worried about holding millions in any sterling-denominated asset

Edit: I wrote this before seeing your post immediately above this.

Lootman wrote:

Spet0789 wrote:You’ve missed quite a few of my points here.

In order
- Cos me too (an additional rate taxpayer in fact).
- Cos the (much higher) return on low coupon gilts is tax free too, as near as makes no difference.
- Cos you can sell gilts immediately and have the money back just as fast (and without losing a month of interest)
- Cos both gilts and NS&I are the U.K. government.

So I still don’t see why anyone would have meaningful amounts in PBs. If you want the dream of a big prize, just buy gilts and spend a few quid on lottery tickets on the side.

My point is precisely that unless I am missing something, a lot of those £123bn of holders are wrong. Basically if you have a decent chunk in PBs and leave it there most of the time, you’d be better off in gilts.

Fair points but again we are only talking about £50,000 here. And if that is all you have then it is not going to make much difference.

On the other hand if you have millions then the amount in PBs is just pin money and you are probably in low-coupon gilts as well anyway.

And of course the gilt strategy only works when they trade below par, which has not been the case for most of the last 40 years.

Personally I would be more worried about holding millions in any sterling-denominated asset

Edit: I wrote this before seeing your post immediately above this.

Agreed on sterling. I am happy to hold my reserve of the next 2 years of expenditure in pounds but no more.

Spet0789 wrote:Serious question… why does anyone keep money in premium bonds these days?

I pulled the entire full holdings (aside from £100 as a placeholder) for my wife and I and bought short-dated low coupon gilts. The yield is c2% higher and almost all tax free.

Other than inertia, any reason for everyone here not to do the same?

have you a link for same please?

You could try here:- https://www.yieldgimp.com/gilt-yields

Spet0789 wrote:Agreed on sterling. I am happy to hold my reserve of the next 2 years of expenditure in pounds but no more.

What do you suggest?

GeoffF100 wrote:

Spet0789 wrote:Agreed on sterling. I am happy to hold my reserve of the next 2 years of expenditure in pounds but no more.

What do you suggest?

My answer would be US dollars. It is the de facto global currency (I have used them in India and China) and typically does well in crises.

Typically has higher interest rates too.

My father used to call a half crown "a half dollar" because for a long time a pound was worth $4.

By the time Harold devalued the pound in 1967 it was from $2.80 to $2.40.

By 1985 we were close to parity but then sterling was around $2 before the global financial crisis. Brexit pushed us close to parity again and now we hover around $1.25.

Lootman wrote:

GeoffF100 wrote:What do you suggest?

My answer would be US dollars. It is the de facto global currency (I have used them in India and China) and typically does well in crises.

Typically has higher interest rates too.

My father used to call a half crown "a half dollar" because for a long time a pound was worth $4.

By the time Harold devalued the pound in 1967 it was from $2.80 to $2.40.

By 1985 we were close to parity but then sterling was around $2 before the global financial crisis. Brexit pushed us close to parity again and now we hover around $1.25.

How do you minimise tax?