Understanding T-Bills and Gilts: Investment Insights

Some great questions this week about planning for the loss of the personal allowance, investing in GIAs, persuading an aunt to write a will, and much more besides!

Shownotes: https://meaningfulmoney.tv/QA26 

01:11  Question 1

Dear Roger and Pete, I enjoy listening to your show driving to work. You are both down to earth and humble with your opinions. I read a lot on finance and have been investing in stocks and share ISA since 2004 and VCTs since 2017. I have built a healthy portfolio of nearly 300k in VCT, 400k in Stocks and share ISA. I also have a healthy DC pension of roughly 700k and DB pension worth around 10k per year from age 60.

I am approaching 50th birthday this year and so decided to use up some of my cash savings which is in excess of my target investment of 20k in ISA and 50 k in VCT(as unable to go over 10k in pension (due to annual allowance threshold). I know I am fortunate and I also live frugally as that's my nature and don't have too many wants.

The question is if I have roughly 80k in mortgage and I have the ability to clear it, should I invest that 80k in VCT on top of my regular VCT allocation of 50k and get the 30% tax benefit(as I am unable to get much tax benefit from my pension) or clear my mortgage as the mortgage is coming up for renewal and likely interest rate will be 4-4.5%. I am torn as I understand in my head that 80 k invested is better than clearing the mortgage over a 20-30 year time frame, but as I am going to be 50 and would like to clear the mortgage and have freedom to decide if I want to enter a life of FIRE or have the ability to FIRE if I get bored. However, I have kids in school and so unlikely I will FIRE until they go to university. Sorry about the long question. Thank you, Fred.

06:25  Question 2

Hello Pete / Roger, Great podcast! I hope karma holds true and all the good you give out back comes back to you both! Question: I am a higher rate taxpayer who maximises their pension, stocks & shares ISA and other best tax sheltered places so need to also build wealth in a taxable GIA. What is best strategy for a higher rate tax payer to do this... dividend / income generating stocks or accumulating (non dividend paying) investments and pay CGT at some stage (regularly)? Thanks, appreciated as ever and hope may help others Ivana 

10:43  Question 3

Hi, Nick (who I assume will read this first), Pete and Roger,

I'm not sure if this is a suitable question for the podcast but here goes.

How can we persuade an aged aunt that she needs to write a will, as us knowing what her wishes are is not sufficient.

I have an aunt who has no children but she has said she wants her estate split equally between her 8 nieces and nephews but she refuses to make a will. The problem is that if she dies intestate there is an estranged brother who would be a beneficiary as far as we understand  and so what she wants to happen won't happen.

Richard J

15:50  Question 4

Hi Pete and Rog

My husband and I have been MM diehards for many years. We think It’s a sad reflection of the state of nation when David Beckham gets considered for a gong before Pete does!

I wanted to ask you about UK T-Bills because they are rarely (if ever) mentioned in your discussion of financial instruments.

We are at retirement age I have a few DB pensions and a SIPP with Interactive Investor of approx. £300k. About ½ is sitting in Cash (including short term money market funds) because we want to draw out our 25% tax free allowance within the next 2 years and we want to minimise risk until that time arrives. I still want to diversify my low risk investments  as much as possible into bonds but my experience of bond funds is that they can also drop significantly with economic conditions whereas we want something to deliver us a (near as possible) guaranteed return.

Our platform (ii) allows us to purchase bonds on the primary market however they are too long-term for us to see them through to maturity given our timescales.

The platform has started to release UK T-Bills which seem typically much shorter term (3 or 6 months) and therefore appear to give us what we are looking for (guaranteed rate at a decent %) and very low risk. I know the % return is determined by the ‘auction’ but it currently looks to be around 4.5% on average (especially the 3-month ones).

We plan to apply the bond ladder concept and buy these T-bills over the next few years on a rolling basis. As they are very short term, if rates drop we can change our strategy mid-plan so I think it also gives us a degree of flexibility too.

Have we overlooked something obvious as it seems to fit our needs perfectly for the next couple of years? We are very hands-on on the platform so we don’t mind getting stuck into the action process (which looks straightforward).

I’d be interested if you had any additional insight / comment on T-Bills being used for this or other strategies.

Regards, Gilly

22:55  Question 5

Hi Pete, Roger,

Thank you for the podcast, I always look fw to listening to it on my Wednesday commute.

I'm trying to figure out when it makes sense to accept paying more income tax versus increasing my pension contributions? My total compensation this tax year is estimated to be £125k meaning I will lose all of my personal allowance with an effective 60% marginal tax rate on the last £25k of my earnings. Part of my compensation is made up of RSUs and very predictable quarterly bonuses. My base salary is approx £85,000.Last year, my total compensation was £105k, with a smaller base salary. My pension contributions kept my taxable income below £100k.

I do not have any children, so the loss of funded childcare is not a concern. I've been contributing 15% for the last 5 or 6 years, starting when I was earning about half what I earn now. I chose that percentage to bring earnings under the 40% threshold at one point. At the start of this tax year, I increased my pension contributions to 20% because my income increased and I had no immediate need for the extra money. My employer only matches up to 5%.

I am in my mid 30s and have roughly £140,000 split between my SIPP and my current workplace pension. Both invested in 100% equities in a global fund.

I am considering increasing my salary sacrifice from 20% to around 30%, to keep my taxable income below 100k to avoid the loss of personal allowance. I'm hesitant because, playing around with the compound interest calculator, starting with a £140,000 balance, contributing £1,700 per month (20% salary sacrifice), and assuming a 7.5% return (which may be slightly optimistic), I would end up with a pension pot of about £1.5 million at age 55. Which might be too much.

I have £80k in my stocks and shares isa, also in global equities and I'm on track contribute 20k this tax year.  I own a flat with a mortgage, fixed at less than 2% for a couple more years with no interest in over paying.

I'm worried I might end up with too much money left when I (eventually!) die, I have no kids and I am not interested in leaving a legacy.

Shall I just accept the tax bill and increase my lifestyle today given I'm already saving enough that I know I will be comfortable later in life.

I read die with zero a year or so ago, and it resonated with me a lot. What else is there to consider?

Thank you, Mark.

29:15  Question 6

Dear Pete & Roger,

I have one question on my financial planning.

This year I had received extra bonus which lead to my salary at the end of tax year of £123k.

I have contributed £17k to my pension using employer contributions but remaining £6k is through my company stock which was vested and I got £3.1k income after paying 47% tax.

My question is as my salary threshold for this tax year crossed £100k, for this additional £6k do I need to submit self assessment and if yes, do I need to declare this £6k full stock amount completely as a separate income even though I already paid tax on it, does this mean I am also liable to pay capital gains tax on this £3.1k?

I look forward to hearing from you what are my options to submit to HMRC through my self assessment so I can calculate if I owe any additional tax or HMRC will refund me some money due to £17k pension contributions?

Many thanks, Vai