Can UK Taxpayers Profit from the New Muni like Gilt Market?

1 year ago
3

Good question.

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In the $4tn municipal bond market, non-American exposure is minimal due to the significant tax breaks these bonds offer to American taxpayers. Despite this, the UK gilt market has experienced a shift that makes it more like the US municipal bond market, offering higher Tax Equivalent Yields to taxpayers than corporate credit. This is because gilts are capital gains tax-exempt in the UK. A chunk of the gilt market has now begun to offer Tax Equivalent Yields up to Gilts+280bps, Gilts+230bps, and Gilts+85bps for Additional, Higher, and Basic Rate taxpayers, respectively. The tax benefits for UK households have not significantly impacted gilt pricing, but this development could lead to an increased interest in gilts from British retail investors.

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