The Lemon Fool

Ive just noticed that Vanguard have a UK (and a US & European) Government bond ETF

https://www.vanguardinvestor.co.uk/inve ... g/overview

Ive never bought a government bond fund before, but the yield @ 3.54% (paid monthly) and the low TER of 0.07% seems fine with me.

It says on BoS/Halifax that I can buy them in an ISA and an ordinary investment account.

Am I right in saying that outwith the ISA, the income would fall under the £1000 interest allowance regime and be subject to the dreaded 'Excess Reportable Income'? On the other hand, there's no CGT with gilts - but does CGT apply to a Gilt ETF?

(Note, I have no idea if government bonds are going to go up, down, sideways or anything in between. It just seems like a reasonable punt for a small amount of money)

Many thanks in advance

Lend to someone who gets to set the terms and conditions, and rates (can always revise taxation to make it look like they paid out a certain rate but that was in practice reduced) - a bit like buying fire insurance from a arsonist. No thanks. We have enough exposure to that via the likes of occupational pension fund holdings who I believe are forced to buy into such bonds.

Yes in addition to fund management fees you will have to pay CGT on capital gains from a ETF if held outside of ISA/SIPP. The CGT exemption on Gilts was primarily driven by the overall tendency towards being zero sum, collecting taxes would be just a overall cost. Wouldn't be surprised however if that is revised by a incoming Lab government, not benefiting from being able to offset real capital losses, collect taxes when you make nominal gains (positive overall benefit for HMRC).

Useful bookmark https://www.yieldgimp.com/gilt-yields

Note how for a higher rate taxpayer that otherwise pay a 40% tax rate that Gilts can be comparable to having bought into a 7%+ effective gross rate and have a reasonable net rate of return due to the Gilt CGT exemption and when the Gilts (taxable) interest payments element are low. i.e. potentially more appropriate for relatively wealthy/high income investors who may be investing a sizable amount into Gilt(s), where much of the total returns are via capital gain tax exempt (Gilt price appreciation) gain. Outside of that ???

Tedx wrote:Am I right in saying that outwith the ISA, the income would fall under the £1000 interest allowance regime and be subject to the dreaded 'Excess Reportable Income'?

That's right.

Tedx wrote:On the other hand, there's no CGT with gilts - but does CGT apply to a Gilt ETF?

Yes it does.

This article may be useful: https://monevator.com/bonds-and-bond-funds-taxed/

Thanks both

Tedx wrote:(Note, I have no idea if government bonds are going to go up, down, sideways or anything in between. It just seems like a reasonable punt for a small amount of money)

Hope you're doing that as a reaction to my clueless commentary! LOL

I actually kind of read a Richard Murphy op ed in the Graun today and didn't vomit because he managed not to hint at MMT or "money printing" or QE but was actually suggesting raising government financing from taxation. Miracles do happen!!


GS

GoSeigen wrote:

Tedx wrote:(Note, I have no idea if government bonds are going to go up, down, sideways or anything in between. It just seems like a reasonable punt for a small amount of money)

Hope you're doing that as a reaction to my clueless commentary! LOL

GS

Oh yeah. And I know where you live if it all goes wrong.

GoSeigen wrote:I actually kind of read a Richard Murphy op ed in the Graun today and didn't vomit because he managed not to hint at MMT or "money printing" or QE but was actually suggesting raising government financing from taxation. Miracles do happen!!

I am fairly sure that the government is already doing that given that, according to some sources, UK taxation is now at its highest level since 1945!

The best way to goose gilt prices would be to cut public spending. But apparently that is off the table.

That said I bought a gilt this past summer for the first time in maybe 30 years. Just for balance as I am always at least 90% in equities. And I don't much like sterling either so if I wanted a bond fund, it would be international.