Gilts – what are they?
Gilts, or Gilt-Edged Securities, represent a loan from you to the Government. Because the Government is unlikely to default on a loan, Gilts are considered to be lower risk than company-issued Bonds.
Gilts generate an income for you through interest on your capital. The amount of income you receive is calculated by applying the coupon rate for the individual Gilt to its nominal value (the amount you get back when the Gilt matures).
Types of Gilts
These are often referred to as plain 'vanilla' bonds as both the coupon and redemption date are fixed at outset.
The redemption date is often fixed at the outset, whilst the coupon is linked to an underlying index such as the Retail Price Index (RPI) or Consumer Price Index (CPI).
Gilts vary in their redemption date. This is the date on which your capital is repaid to you.
- Dated Gilts – there is a firm redemption date
- Undated Gilts – there is no stated redemption date
- Double-dated Gilts – the Government chooses the exact timing of redemption at a point between two given dates
Gilts are also categorised according to their term or maturity date.
- 5 years for a short-maturity Gilt
- Between 5 and 15 years for a medium-maturity Gilt
- 15 years or more for a long-maturity Gilt
Interest on Gilts is paid gross but it is liable for Income Tax. This makes them particularly attractive to non-tax payers. There is an option for tax payers to opt to have tax deducted at source on application. Any profits from selling Gilts are tax free and don't have to be included in tax returns.
Holding a Gilt in an ISA
Interest is paid tax free and without any liability to the ISA holder. Any profits from selling Gilts held in ISAs are free from tax and don't have to be included in tax returns.
What if I want to sell before the redemption date?
If you sell your investment before the redemption date, you may get back less than you originally invested. Call our Dealing team on 01296 41 42 43 to obtain a price.