TG50 have I understood this correctly, first UK Gilt Purchase
Hi,
I am UK resident and am looking for a tax-efficient way to invest approximately £50,000 outside of my ISA and pension allowances, both of which are already fully utilised. The majority of my existing investments are exposed to the US equity markets, and my residential mortgage has been fully repaid.
I am currently considering 0.625% Treasury Gilt 2050 (TG50), which appears to have a current yield to maturity of approximately 5.7–5.8%.
Based on the current price, I estimate that a £50,000 investment would generate approximately £925 per annum in coupon payments.
Am I correct in understanding that:
- The annual coupon would be treated as savings income and therefore could potentially be covered, in whole or in part, by my Personal Savings Allowance, depending on my other taxable savings income?
- Capital gains on the disposal or redemption of TG50 are exempt from Capital Gains Tax?
- Consequently, if gilt yields subsequently fall and I sell TG50 at a higher market price, any resulting gain would also be free of CGT?
- Alternatively, if yields remain elevated, I could simply hold the gilt until its October 2050 maturity and receive the £100 nominal redemption value per £100 nominal held, together with the remaining coupon payments.
If this understanding is correct, the combination of a relatively high yield, CGT exemption and the option to either sell before maturity or hold to redemption appears potentially very attractive for an investment outside tax-efficient wrappers.
I would be grateful if you could confirm whether my understanding of the tax treatment and the risks is correct.
I am also guessing this would offer me some diversification from my high equity allocation. I would also be looking to make more of these type of investments in future years to create a bond ladder in retirement.