The software has no specific mechanism for modelling gilts and corporate bonds that are owned directly, rather than as a unit holding, within an investment or pension fund.
We recommend modelling gilts and bonds as a purely 'income producing' (interest yield) investment, as follows:
- Enter as an 'Investment' account, specifically as an 'unwrapped' account, because the 'income' (the 'coupon') that is generated will be taxable.
- Enter the 'Balance' of the account at a value that represents the approximate 'market value' of the holding, i.e., if the entire holding were to be sold.
- Set the 'Purchase Value' at a value equivalent to (at minimum) the stated account 'Balance'.
- Within the 'Growth' section, opened via the left-hand menu, assume there is either 0% capital growth (illustrated below), or - if preferred - that there is negative capital growth, to avoid capital gains from accruing. In conjunction with #3, this will prevent the possible occurrence of CGT:
- Also within the 'Growth' section, set the 'Interest' yield (see screenshot, below) at a value that will generate the expected income, given the assumed capital 'balance' referenced in #2:
- Note: This is a caveat to #5. In the event your default assumption is to 'grow investment accounts using an asset allocation', the asset allocation for the account should be set to '100% Cash', because 'Cash' is a 100% 'income-producing' asset class. You will need to take account of the assumed 'Cash' growth rate (under Plan Settings > Market Assumptions), when 'balancing' the assumed 'capital value' of the portfolio with the expected level of savings income (the 'coupon').
- As circled below, be sure to set the 'Reinvest Yield' option to 'No'. The 'yield' (the 'coupon', in effect) generated by the investment will be 'distributed' to the individual and will therefore be represented, visually, on the Cash Flow:
- From the left-hand menu, select the 'Withdrawal Limit' option and (at the bottom of the screen) set to 'Do Not Allow' (illustrated below), to avoid the possibility of the software taking 'as needed' withdrawals from the account:
- The initial assumption will be that proceeds from maturing gilts or bonds will be reinvested such that the basic character of the portfolio (the assumed capital value and level of income) will remain basically unchanged. In the event, however, that some or all of the income-producing assets will be sold or that principal will not be reinvested, one would use the 'Transfers' function, via the left-hand menu, to move funds into a savings, ISA, or other 'general investment' account.
In combination, the inputs detailed above will provide a consistent level of savings income (the 'coupon'), with the appropriate tax treatment (such that the software will apply an individual's Personal Savings Allowance, etc.), whilst also avoiding the occurrence of any CGT. The assumed 'market value' of the asset will also be represented on the individual's personal 'balance sheet', i.e., as part of one's 'net worth' and part of one's estate, on death.