What caught my eye this week.

It’s not been easy to find reasons to be optimistic about the shrinking British stock market in recent years.

But I think how private investors, fund managers, the investment trust industry, and investment platforms worked together to defeat US firm Saba’s designs on the trust sector might qualify.

As I wrote last month, there was something of a last alliance vibe about this coalition of the unwilling.

But so comprehensively was Saba defeated – it lost all seven showdowns, and on large turnouts of private investors who overwhelmingly voted no – that the result was quite heartening.

This was shareholder democracy in action, and I’m all for it.

Moreover the platforms showed that they can facilitate such a democracy if called upon.

Your vote counted

In the early days of Monevator, lots of readers urged me to write articles about the evils of nominee share ownership and the demise of paper share certificates.

I saw their point. But I also saw the changes as inevitable and not the most important battle to win compared to, say, lowering fees or spreading knowledge about index fund investing.

Anyway such appeals stopped long ago, whether because the proponents accepted the change or because they moved on to a realm where their voice was even less influential than here on this mortal coil.

But wherever they are, I hope they’re heartened too.

Nominee ownership and representation via electronic voting on platforms does not inevitably mean disenfranchisement, or to be kicked around by those with the billions and the biggest boots.

And that is good news, whether or not you agreed with Saba’s charges and proposals. (Personally I share some of his complaints. But I was not persuaded by the remedy he was offering.)

He gets knocked down, but he gets up again

Saba is now going after a new quartet of trusts, suggesting they be turned into open-ended funds.

Curiously, Moguls-featured Pershing Square isn’t on the list despite its yawning discount.

Anyway, we’ll have to whether Saba’s relentlessness eventually exhausts the opposition.

More UK investors are apparently getting in on the act too. For example, the hugely talented Christopher Mills is said to be raising money for a trust that will work to close discounts at rivals.

As somebody who sees rife opportunity in the trust sector, I’m not surprised.

Though ironically two Mills-affiliated investment trusts themselves sit on 25-30% discounts…

Passive engagement

I’ll leave more comment in that direction for our Moguls member posts though.

Indeed for most Monevator readers who sensibly invest in index funds, this might all seem a bit irrelevant.

But I’d suggest it’s very relevant.

As index funds take up an ever-larger share of the overall investing pie, it’s really important that cheap and effective investing for the masses doesn’t become a lazy synonym for disenfranchised investors and the fracturing of shareholder democracy.

That charge has already being made as index funds have grown to dominate the investing landscape. For example, from the New Statesman:

The upshot of this mix is an ownership regime with a chief interest in maximising assets – whether by minimising costs to take market share, or by promoting general asset price inflation – and takes little interest both in how capital is allocated and how any company within its diversified portfolio is governed.

In other words, such an ownership regime takes no ethical stance on what those companies produce, how they are run, what they sell or what impact they have on the planet.

It’s a valid concern.

Squint though and you can see this battle with Saba as upholding the thin end of the same wedge that ends with Vanguard cutting fees further in the US recently.

The common thread is what’s ultimately in the long-term interests of ordinary shareholders.

Perhaps there’s even a future where even index fund investors get to vote their wishes somehow on the vast range of issues raising by the firms their tracker funds hold – albeit perhaps by aggregating their general wishes at the fund manager level?

Time will tell. But I’m more hopeful about that sort of thing than I was two months ago.

Have a great weekend.

p.s. Two corrections! We featured a wonky graphic in the email of TA’s linker piece on Tuesday. Thanks to reader Richard for the heads-up, and see the corrected post for the right graph. Then the next day TA achieved a – very rare for him – double by misstating the age you can open a cash ISA. You must be 18, of course. Sorry cash-loving youngsters! And cheers to reader Tommo for spotting what I missed.

[continue reading…]

The tax year runs from 6 April to 5 April the next year. This means that the most crucial UK tax deadline occurs every April.

That’s because there exist various annual allowances and tax reliefs that you need to make use of to legally mitigate your income tax bill and stop taxes devouring your investment returns.

Most of these are ‘use it or lose it’ allowances with a 5 April deadline.

It’s no good bemoaning in June that you should have filled your ISA allocation by 5 April, but you were too preoccupied by the Donald Trump Show or the Six Nations rugby!

No point cursing if you create a £500 capital gains tax liability in July that you might have defused in March!

Ch-ch-changes

Of course you read Monevator. You know this kind of stuff. But it’s still all too easy to overlook something.

Especially when the tax rules keep changing! For example, the capital gains allowance was halved in the 2024-25 tax year to just £3,000.

So let’s run through a checklist of what to think about as the UK tax deadline draws near.

Follow the links in each section to go deeper.

ISA allowance

The annual ISA allowance is the maximum amount of new money you can put each year into the range of tax-free savings and investment accounts that comprise the ISA family.

The ISA allowance for the current tax year to 5 April is £20,000.

You cannot carry forward or rollback this ISA allowance. What you don’t use in the tax year is lost forever.

ISAs are a superb vehicle for growing your wealth tax-free. But the fiddly rules – seemingly made up by a bureaucrat with a grudge against mankind – are subject to change over time.

Watch out for rule tweaks

For example, as of the 2024-25 tax year you can now open multiple ISAs of the same type in the same tax year.

Previously you could only open one new ISA of each type in a tax year.

Note though that you can only contribute £20,000 in total to your ISAs a year – old or new. And it’s down to you to keep track of your running total.

Also, you can still only pay into one Lifetime ISA per year. The maximum contribution here is £4,000. This counts towards your £20,000 annual ISA allowance.

Another change is that you can now make partial ISA transfers – although not all platforms will accept them. (Under the old rules, if you contributed to an ISA and then wanted to transfer the funds to a different provider in the same tax year, you had to transfer all of that year’s ISA contributions).

And another: fractional shares can now be held in a stocks and shares ISAs. They’re listed as ‘fractional interests’ on this page of qualifying investments.

My co-blogger wrote the definitive guide to the ISA allowance.

• The ISA allowance: how it works and how to use it

Pension contributions annual allowance

There is a limit to how much money you can contribute to your pension in a given tax year while still receiving tax relief on those contributions.

It is sometimes referred to as the pension annual allowance.

Despite massive speculation with every Budget, the allowance is still £60,000. ¹

However the rules about inheritance tax and pensions were thrown into the Magimix blender in late 2024:

• Pensions and inheritance tax: rugged by Reeves

Note that saving into a pension is mostly a tax-deferral strategy. That’s because you’re eventually taxed on pension withdrawals, unlike money you take out of an ISA tax-free.

In theory this makes ISAs and pensions equivalent from the perspective of tax.

In practice though, the fact that you can also draw a special tax-free lump sum from your pension gives pensions an edge in tax-terms – albeit at the cost of locking away your money for years.

Weigh up the pros and cons of each tax wrapper. We think most people should do a bit of both.

You can reduce your marginal tax rate by making pension contributions, if you can afford to go without the money today. Those on higher-rate tax bands should definitely do the maths:

• The rich person’s guide to pension contributions

Personal savings allowance

Under the personal savings allowance:

• Basic-rate taxpayers can earn £1,000 per year in savings interest without having to pay tax.
• Higher-rate taxpayers can earn £500 per year.
• Additional rate taxpayers don’t get any personal savings allowance.

Back when interest rates were very low, these savings allowances seemed quite generous.

But rising rates have changed everything. Even interest on unsheltered emergency funds can now take you over the personal savings allowance and see some of your interest being taxed.

Redo your sums. Higher-rate tax payers might look into holding low-coupon short duration gilts instead. Recently these have offered a lower-taxed alternative to savings interest.

• Why the personal savings allowance is important again

Dividend allowance

As of 6 April 2024, the annual tax-free dividend allowance was reduced to £500.

Dividends you receive within the tax-free dividend allowance are not taxed. But breach the allowance and you’ll pay a special dividend tax rate on the rest, according to your income tax band.

You can avoid the whole palaver by investing inside an ISA or pension.

• UK dividend tax explained

Capital gains tax allowance

Everyone has an annual capital gains tax allowance, or ‘annual exempt amount’ in the lingo of HMRC.

This allowance was halved to £3,000 from 6 April 2024.

It is (for now) frozen at this level.

Capital gains tax is levied on the profits you make when you sell or transfer most assets. These assets include everything from shares and buy-to-let properties to antiques and gold bars.

You can shield your gains from capital gains tax by investing within ISAs and pensions. Go re-read the relevant bits above if you skimmed them!

• Capital gains tax in the UK

EIS and VCT investments

You can also reduce your taxes by investing in Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS).

These vehicles are mostly marketed at wealthy high-earners for whom the large income tax breaks are attractive.

But be aware that these tax reliefs come with all kinds of risks, rules, and regulations.

VCTs

VCTs are venture capital funds run by professional managers who make investments into startup companies.

But somewhat quixotically, VCTs don’t even pretend to try to deliver high venture-style returns for investors.

Instead they aim to return cash via steady tax-free dividends.

You can invest up to £200,000 a year into VCTs. You must hold them for at least five years to keep your 30% income tax relief.

VCT fund charges are invariably expensive, and the returns mostly mediocre – especially if you back out the tax reliefs.

EIS

EIS investing is even riskier. Qualifying companies are usually very young, and many investors buy into them via crowdfunding platforms rather than professional fund managers.

The quality of these EIS opportunities is extremely variable, and information usually scanty.

And while there have been a few big crowdfunded winners, the majority do poorly and often go to zero.

If you’re a baller who buys Lamborghinis before breakfast, you may already know you can put up to £1m a year into EIS investments. (Up to £2m if you’re investing in ‘knowledge intensive companies’).

Again, you can knock 30% of your EIS investment amount from your income tax bill – and there are other reliefs should things go wrong.

You must hold EIS investments for three years to qualify for the tax relief.

Most people shouldn’t put more than fun money into EIS or even VCT schemes, in our opinion. Certainly not unless they’re very sophisticated investors or getting excellent financial advice.

• The risks of Venture Capital Trusts
• What are Enterprise Investment Schemes?
• Running a 31-fold gain in pursuit of a 100-bagger

Check in on your tax band and personal allowances

The rate of income tax you pay depends on your total income from all sources. This includes salary, interest, dividends, pensions, property letting, and so on.

You add up all this income to get your total income figure.

You then subtract your personal allowance from the total to see which tax bracket you fit into.

Everyone starts with the same personal allowance, regardless of age:

• This personal allowance is currently £12,570

Your personal allowance may be bigger if you qualify for Married Couple’s Allowance or Blind Person’s Allowance.

However the Personal Allowance goes down by £1 for every £2 of income above a £100,000 limit. It can go down to zero.

For England, Wales, and Northern Ireland, the income bands after deducting allowances are:

Income Tax Rate	Income band
Starting rate for savings: 0%	£0-£5,000
Basic rate: 20%	£0- £37,700
Higher rate: 40%	£37,701-£125,140
Additional 45% rate	£125,141 and above

Source: HMRC

Note: If your non-savings taxable income is above the starting rate limit, then the starting savings rate does not apply to your savings income.

Scotland has its own income tax rates.

As we’ve seen above, there are further allowances and reliefs for income from certain sources – such as dividends and savings – that can reduce how much of that particular income is taxable.

You can take steps such as making additional pension contributions or having a spouse hold certain assets to further reduce your taxable income or the highest rate of tax you pay.

• UK tax brackets and personal allowances

Don’t make the UK tax deadline into a crisis

Scrambling to exploit these allowances before the tax year ends is not only stressful – it’s financially suboptimal.

If you had cash lying around that you might have put into an ISA earlier in the year, for example, then it could have been earning a tax-free return for months already.

But don’t blush too hard if you find yourself in this position.

Most of us are similar, which is why we wrote this article – and why the financial services industry bombards us with ISA promotions every March.

Try to automate your finances to invest smoothly and intentionally over the year.

And remember that April also brings warmer weather and longer days. Life is about much more than money and taxes!

Save and invest hard, take sensible steps to mitigate your tax bill, and enjoy life like a billionaire with whatever you’ve got leftover.

1. Very high-earners are subject to a much-fiddled with taper that reduces their allowance. It is reduced by £1 for every £2 someone earns over £260,000, including pension contributions.[↩]

The failure of index-linked bond funds to perform post-Covid has really been bothering me. What’s the point of these things if they don’t actually protect you from inflation? Meanwhile, individual index-linked gilts – correctly used – are meant to be a proper inflation hedge. But is that true?

Can we empirically prove individual linkers ¹ worked when inflation let rip?

First, some context. Our favoured linker fund holding at House Monevator prior to the post-pandemic price surge was a short-duration model. That’s because short-duration index-linked fund returns are more likely to reflect their bonds’ inflation ratchets, and are less prone to price convulsions triggered by rocketing interest rates.

Longer duration linker funds, meanwhile, got hammered in 2022 because they’re more vulnerable to rising interest rates. When rates soared, prices dropped so hard and fast that their bond’s inflation-adjustment element was rendered as effective as wellies in a tsunami.

Hopefully you at least avoided that fate…

The weakest link(ers)

So it’s October 2021, and you’re duly positioned on the coastline, scanning the horizon for inflation, with ample resources invested in short-duration linker bond fund units.

Here’s how our defences performed once the inflation Kaiju was unleashed:

Inflation versus short-duration linker fund

Index-linked bond fund is the GISG ETF. Data from JustETF and ONS. February 2025. NB. The linker fund trend line was corrected on 18 Feb 2025.

Oh. As that calm-voiced announcer-of-doom on Grandstand might have intoned: “Inflation One, Passive Investing Defence Force, Nil.”

Or, in numbers more appropriate to an investing article, the annualised returns from October 2021 (when inflation lifted off) to year-end 2024 are:

• UK CPI inflation: 5.9%
• Short-duration linker fund: 0.6%

Note: all returns in this article are nominal, dividends reinvested.

In other words, this linker fund fell far behind rising inflation and posted real-terms losses over the period.

Right-ho. So that was a learning curve.

Since then I’ve put a lot of time into researching individual index-linked gilts, commodities, gold and money market funds – all assets fancied as offering some degree of inflation protection.

The most reliable should be individual index-linked gilts. After all, they come with UK inflation-suppression built-in. Put your cash in, and it pops out at maturity, with a price-adjusted enamel on top. Purchasing power protected!

All you must do is not sell your linkers before maturity. Buying-and-holding prevents the kind of losses bond funds are vulnerable to realising. Funds’ constant duration mandates make them forced sellers when bond prices are down.

Excelente! But one thing was still nagging me. Did individual linkers actually deliver on their inflation-hedging promise during the recent price spiral?

Inflation versus individual index-linked gilts

To answer that question, I simulated the performance of a small portfolio of individual index-linked gilts using price and dividend data from October 2021 to year-end 2024.

Then I pitted the individual linkers against CPI inflation and GISG, the short-duration linker ETF discussed above.

Here’s the chart:

Data from JustETF, Tradeweb and ONS. February 2025. NB. The linker fund trend line was corrected on 18 Feb 2025.

Okay, the individual linkers (pink line) did better than the fund but they still lagged inflation. The annualised return numbers are:

• Inflation: 5.9%
• Individual linkers: 4.1%
• Linker fund: 0.6%

That’s still an unhealthy gap as far as I’m concerned – like buying a peep-hole bulletproof vest.

Proving a negative

Why did the individual index-linked gilts lose money versus inflation?

Because way back in 2021 they were saddled with negative yields. That is, the buy-in price for linkers was so high that their remaining cashflows were guaranteed to sock you with a loss, if you held them until maturity.

The best a linker portfolio held to maturity could do was limit the damage against inflation. But that negative yield drag meant it was always going to underperform.

But that’s a historical problem. Today index-linked gilts are priced on positive yields, so they can keep pace with inflation while sweetening the deal with real-return chocolate sprinkles on top.

The other point worth making is that my clutch of individual linkers were still susceptible to the downward price lurches that afflicted constant-duration bond funds.

The chart above shows a big dip in late 2022 when prices fell as interest rates took a hike, for instance. Think Trussonomics and other traumas of the era.

These are only paper losses to the individual linker investor who holds until maturity or death. Hold fast and eventually your bond’s price will return to meet its face value on redemption day (plus inflation-matching bonus in the case of linkers.)

Meanwhile, the bond fund is flogging off its securities all the time – profiting when prices rise and losing when they fall. That was a very bad design feature during the post-pandemic inflation shock.

My individual linkers’ price dip was smaller than the fund’s largely because I could choose to populate my modelled portfolio with shorter-duration bonds. Short bonds are less affected by interest rate gyrations, as discussed.

Still, I wondered if I was being unfair to the fund. After all, linker funds previously gained in 2020 as money flooded into the asset class.

One last chance for the linker fund

The next chart shows annual returns including 2020, the year before inflation ran hot.

Index-linked bond fund is Royal London Short Duration Global Index Linked M – GBP hedged. ² Data from Royal London, Tradeweb and ONS. February 2025.

Yep, 2020 was a good year for the linker fund. Interest rates fell and its price rose giving it a healthy lead over inflation, and the individual linkers. (Remember the fund profits by selling bonds as prices rise. Meanwhile, the longer average duration of the fund’s holdings meant that it enjoyed a stronger bounce versus my battery of gilts.)

There’s not much to see in 2021 – bar inflation engorging itself – but 2022 is the fund’s annus horribilis. It’s down 5.4% at face value and 16% in real terms. (Horrifyingly, the long-duration UK linker ETF, INXG, was down 45% in real terms that same year.)

Overall, incorporating 2020 does improve the linker fund’s showing. The annualised returns for the five year period 2020 – 2024 are:

• Inflation: 4.6%
• Individual linkers: 3.7%
• Linker fund: 2.2%

It’s still not enough. In my view, the best linker funds available were a fail when inflation actually came calling. I personally held both GISG and the Royal London fund at the time and became deeply disillusioned with them.

All change

The issue driving all this drama was that as inflation accelerated, investors demanded a higher real yield for holding bonds.

The average yield of the simulated linker portfolio above was -4.2% in October 2021. It had risen to 0.5% by December 2024.

When bond yields go up, prices go down. And that exposes the fatal flaw in linker fund design from an inflation-hedger’s perspective – the available products are always selling and even the short duration versions aren’t short enough.

Perhaps yields won’t surge as violently in a future inflationary episode.

But I don’t see why I’d take the risk when I can now buy individual index-linked gilts on positive real yields, hold them to maturity, and neutralise that problem. Individual linkers aren’t going to be slow-punctured by negative yields from here.

So I’ve ditched my index-linked bond funds. They were better against inflation than the equivalent nominal bond funds. But that’s not saying much.

There are other places to store your money so I’ll extend this comparison to the most interesting and accessible of those alternative assets in the next post.

Take it steady,

The Accumulator

Bonus appendix

If you’re interested in buying individual index-linked gilts then these pieces will help:

• Should you build an index-linked gilt ladder
• How to buy index-linked gilts
• Index-linked gilts: how to price, value, and track them in your portfolio
• How to build an index-linked gilt ladder

Are individual linkers better than linker funds?

At hedging inflation yes. At being more profitable, no.

For the avoidance of doubt, I’m not saying that a portfolio of individual index-linked bonds can magick up more return than a bond fund containing precisely the same securities.

What I am saying is that the individual linker portfolio is the superior inflation hedge when each bond is held to maturity. The design of constant maturity bond funds mitigates against matching inflation in the short-term, but should provide a similar overall return in the long run.

If you don’t care about hedging inflation then there’s nothing to gain by swapping your bond funds for a rolling linker ladder.

Fixed duration index-linked gilt funds could also hedge inflation effectively, but they don’t exist.

UK inflation versus globalised inflation

It’s worth mentioning that individual index-linked gilts are linked to UK RPI inflation (switching to CPIH in 2030). RPI was higher than CPI during the period so that’s helped my simulated portfolio claw back some ground against CPI.

By contrast, the short-duration linker ETF, GISG, currently allocates 14% of its portfolio to index-linked gilts. The rest is composed of other developed market, CPI-linked, government bonds: 56% US, 10% France, 7% Italy and so on. The point being that these other linkers don’t protect against UK inflation, though they do match related measures i.e. inflation in highly interconnected, peer economies.

As it was, inflation in these other countries was typically less than the UK’s post-pandemic. I haven’t attempted to calculate what difference this made but I think it’s another reason to favour an index-linked gilt investment product when you can get it.

Individual linker portfolio simulation

I didn’t want to bog the main piece down with a wander through the weeds (well, more than I already have) but for the record I’ll now show my workings.

The individual linker portfolio was constructed from three index-linked gilts, TIDM codes: T22, TR24, and TR26. Each gilt matures in the year indicated by the numbers in the code.

When each gilt matures, the redemption payment is reinvested into the next shortest gilt. For example, T22 is reinvested into TR24. I did not include trading costs for reinvesting dividends or redemption monies.

Relatedly, the performance figures for GISG and the Royal London fund are slightly affected by their OCFs of 0.2% and 0.27% respectively. But I don’t think these charges made a meaningful difference to the comparison over such a short time-period. The differential is too big to be explained by fund fees.

1. Index-linked bonds are colloquially known as ‘linkers’.[↩]
2. Full year data wasn’t available for GISG in 2020 or 2021 as it launched April 2021. However, only annual data is available for the Royal London fund.[↩]