Popular Reading
Tax Treatment
The interest earned on gilt-edged stocks is, of course, taxable income in the hands of the stockholder. In practice the interest payments are made by the Bank of England, the registrar for most stocks, net of tax at the basic rate of income tax, so the stockholder, unless he is liable to higher rates of income tax or to the investment income surcharge, is not liable to pay any further tax on it. Thus a holder of £1,500 nominal of 81/a % stock will receive each half-year an interest warrant for £44.60 net, representing a gross payment of £63.75 (4.25% of £1,500) less tax at 30%.
A very small number of specified stocks (e.g. 31/2% War Stock) is paid gross, but in the hand of a UK resident this income is taxable.
National Savings Register
Most popular government stocks can be bought and sold in small quantities on the National Savings Register, which is a subsidiary register to the Bank of England. An attraction is that interest payments are made without deduction of income tax - a useful feature for a person whose income is not taxable. Dealing costs are lower than are those attaching to transactions through a stockbroker where the Bank of England main register is used, but prices are less keen.
- Investments
- National Savings Certificates
- Fixed Interest Investments
- Investments and Tax
- Cost of Dealing
Accrued Interest
Another reason for the disparity between the yields on stocks that ought, on the face of things, to be identical, is concerned with the due date of the interest that is paid on the holdings. As interest is paid to stockholders at half-yearly intervals it follows that a holder who purchases just after an interest payment will have a full six months to wait for this first interest payment; whereas one who buys five months later will have only one month to go before receiving a full six months' interest. The first purchaser is buying capital only; the second is buying capital plus accrued interest to date.... see: Accrued Interest