Government bonds

chancer12

Hi, am thinking of investing in government bonds as I'm recently retired and have a small gratuity which I'd like to save for a rainy day. However, I have a larger amount from a house sale which I thought to put in bonds also as the market is very unpredictable at the moment and I don't expect to find a property within the next 6 months or so. Does anyone know how long it takes to surrender the bonds in the event that I find somewhere.

John_100

I am looking at Irish Govt. bonds at the moment, but not finding it easy to work out who is the cheapest broker to go with, as some seem to have a minimum investment of €100,000, which is ok for some!

Have you, or anyone else reading, bought Irish Govt. bonds recently, and if so, what was the minimum investment amount and commission charge.

Cantor Fitzgerald, who are a primary dealer for the NTMA, have o 0.5% commission fee, and then an annual charge of 0.5% once the bond is purchased. This charge is very high and eats into the annual coupon interest, so they are not a good option in my opinion.

Any experts on Irish Govt. bonds here?

Geuze

I bought Irish Govt bonds on DeGiro recently.

Commission = 3 euro.

Geuze

Read this thread on AAM:

https://www.askaboutmoney.com/threads/irish-government-bonds-for-the-retail-punter.230776/

John_100

https://www.boards.ie/discussion/comment/120828193#Comment_120828193

Yes, I bought one on Degiro as a test. I was able to buy €1 worth and the commission was €3 as you stated. Degiro do not quote all the Irish Treasury Bonds for some reason, which is a bit silly!

For small amounts, 10k to 30K, then Degiro is the way to go, as the Irish brokers have a 0.5%commissioncharge with a minimum charge (around €100), and some then charge a 0.5% annual handling charge, which is crazy if you are investing a few hundred K in bonds, as the coupon interest will be eaten into with this annual charge.

They are definitely looking good at the moment, especially if you are buying to hold and to receive the coupon interest, which of course is taxed as income tax and has to be filed in your annual return.

I assume you are familiar with yield to maturity and how to compare the various bonds on offer - at first it can be a little difficult to grasp, but after a few hours of serious work it is easy to grasp the basics and for the beginner to be aware of what bonds offer.

John_100

I think this is all the Irish bonds on Degiro - if you find any more please post.

you can see my test purchase here of €1 on 10/07/23 along with recent trade volumes

Geuze

Key point is that there is no CGT on Irish Govt bonds.

Many trade below par now, due to large falls in bond prices during last year.

The zero and low coupon bonds trade down at 80 and 90.

If held to maturity, there is a risk free and tax free capital gain.

The yield to maturity is about 2.6% to 2.8%, below inflation, but above deposit rates.

Geuze

There is one zero coupon bond, if you want to avoid declaring any income.

Next up is the 0.20% coupon bond mentioned above.

John_100

If you are putting a nice bit of money into Irish Treasury Bonds then you can easily lose out on a good few K over the investment period, due to the annual charge by the broker. I would not put a large amount of money into a Degiro account, for obvious reasons, but I would also not pay 0.5% annual charge on an account just to leave the bonds sit there, as that is just throwing your money away.

€100,000 x 0.5% =€500 commission plus €500 annual charge so down €1,000 in first year. The more you invest the more you are down!

Some brokers are cheaper than others with their annual charge, but better again if you don't have to pay any annual charge :)

Geuze

A lad on AAM asked me about buying 500k of Irish Govt bonds on DeGiro!!!

John_100

One thing that I did not check yet, and you might know the answer?

If interest rates start to pull back then bond prices will rise, hence you might decide to cash in and take your profit a bit early, as you will now receive more money to sell the bond than what you paid for the bond.

I assume that this realized profit is also CGT exempt, but I have not verified it yet?

Actually, I think my assumption here might be wrong, as if you buy and sell securities for profit I think Revenue consider that as "trading" and hence it will come under income, but I will check it for certain.

Geuze

https://www.boards.ie/discussion/comment/120844231#Comment_120844231

Capital gains from selling bonds are free of CGT:

https://cantorfitzgerald.ie/wp-content/uploads/2016/11/pdf_bonds_guide.pdf

John_100

https://www.boards.ie/discussion/comment/120848918#Comment_120848918

only if you hold for a period of time..as i thought..if you "trade" bonds..as in buy and sell in the same year and make a profit on any price increase in the bond value..then..you might find that you have an uphill battle with revenue to try and prove that this profit is not to be considered as income for that year..same as the coupon interest.

in summary..if you buy an Irish Treasury Bond and hold to expiry for a few years or more..then no CGT is payable..BUT..if you buy and dispose of a bond in any year..then..i regretfully say that the profit realized is considered income for that year..and you have to declare it for tax..with revenue..it is always better to be safe..than sorry :)

i hope someone proves me wrong..but i don't think anyone will !

Geuze

Dealing/trading means ongoing buying and selling, regularly and consistently, so that the Revenue sees you as a trader, rather than a saver.

Somebody who buys and sells shares and bonds a few times a year is not a trader.

See badges of trade.

@John_100 you have nothing to worry about.

Buy and sell shares/bonds several times a year, and you are not a trader, so you don't pay income tax on the gains.

Of course, you may owe CGT on any gains from shares, but not from Irish Govt bonds.

Geuze

https://www2.deloitte.com/ie/en/pages/tax/articles/irish-revenue-issues-further-guidance-on-the-taxation-of-crytptocurrencies.html

Read the final paragraph.

John_100

https://www.boards.ie/discussion/comment/120851865#Comment_120851865

i don't think you are 100% correct here..it is a dodgy area and revenue will never tell you that you are not liable for income tax if you only buy and sell so many times in a year..it is always best to pick the ways that you know there will be no dispute over..as in buying and holding a govt. bond to maturity..clear cut and no argument from revenue..BUT..once you sell the govt. bond prior to maturity..and depending on how much you make..i believe that revenue might well consider this profit as income..

to be honest..i would not take the chance..even spread betting..which is tax free..if done regularly with the intention to make profit..is considered as income by revenue..

of course..each person can decide what to do with their own income tax returns!

https://www.charteredaccountants.ie/taxsourcetotal/1997/en/act/pub/0039/tb/sec0021-1-tb.html

nompere

There is specific anti-avoidance legislation - S.815 TCA 1997 - designed to prevent bond washing, where bonds are sold shortly before the payment date of interest, as the selling price will include an accrual for that interest.

815 Taxation of income deemed to arise on certain sales of securities

Summary

This section counters a practice known as “bond washing” whereby securities are sold

before the payment of interest so that the interest accrues to the holder as a capital gain

rather than as income. The person selling the securities is liable for tax in respect of the

interest which is deemed to have accrued on a day to day basis up to the date of sale.

This provision does not apply in certain circumstances including, if the security has been

held by the same owner for a continuous period of at least 2 years, or where the seller is

a dealer in securities the profits of whose trade are assessed to tax under Case I of

Schedule D.

John_100

https://www.boards.ie/discussion/comment/120857647#Comment_120857647

so what is your understanding in relation to profit made on the buying and selling of govt. bond prior to redemption date..say if i buy a bond say tomorrow..and sell in 2 months time for a profit of say €3,000..

my understanding is that revenue will consider this as income..as per the badges of trade..and i would have a difficult task proving otherwise!

Geuze

If you buy today, and sell in a few months, and make a gain, then that is a capital gain.

It may be subject to CGT.

If you did that daily, or maybe even weekly, consistently, then it may be considered a trade.

Doing it a few times a year is not a trade, and so is not subject to income tax.

Geuze

Tens of thousands of people in Ireland buy and sell assets each year, and submit CGT returns.

They are not considered traders, and are not subject to income tax.

If what you say is correct, it would be all over Boards and AAM.

It is not, because a few trades a year does not constitute enough to define you as a trader.

John_100

i still think revenue will consider it as income.. especially if the intention can be seen to be that the asset was bought for short term gain

the reason why it is not all over boards or aam is probably because anyone who does such a transaction is not declaring it as income..and it will not be an issue unless revenue have some reason to look into the transactions

however..i do intend to find out from the horses mouth..but as previously mentioned..i do not expect revenue to tell anyone that is ok to make money on a short term transaction..and have that transaction considered as cgt rather than income

with revenue.. everything is fine until something goes wrong..so..it is always to best to err on the side of caution.. remember all those poor old ladies who had to pay out all they had to revenue..just because their husbands decided to listen to the bank managers and give a UK address to avoid paying dirt tax..and the poor old ladies did not know a think about it !!!!

decko11

https://www.boards.ie/discussion/comment/120844204#Comment_120844204

They seem part of a listed group with market cap of 800m - would you be worried about holding any amount of shares over the insured amount of 100k ?

Geuze

Be careful, Govt bonds are not deposits, and so are not insured deposits. the 100k insurance limit is not relevant here.

That said, Govt bonds are a liability of the State.

The State has always repaid its debts.

decko11

https://www.boards.ie/discussion/comment/121130168#Comment_121130168

indeed - with all the talks of a strategic default around 2010-12 - Risteard Mulcahy the famous surgeon recalled his dead General Mulcahy saying that he and Generl Collins when they raised funds post independence agreed never to default

dxhound2005

Capitalist countries don't default, they just keep borrowing more. It would be extraordinary for any Minister for Finance to say that they would default. Especially on money borrowed from his own citizens. Whether we or the USA or the UK are good for our foreign debts will never be tested. The lenders are not going to come looking for 33 trillion Dollars from the USA tomorrow.

Collins was (Sinn Féin) Minister for Finance, it seems in the lucky position to start off with no debt belonging to the Free State. The next Sinn Féin office holder will not start off with a clean slate.

https://www.oireachtas.ie/en/debates/debate/dail/1921-12-15/1/