If you purchase a gilt you are lending money to the UK Government. Gilts are, issued by HM Treasury and listed on the London Stock Exchange. The term “gilt” or “gilt-edged security” is a reference to the primary characteristic of gilts as an investment: their security. This is a reflection of the fact that the British Government has never failed to make interest or principal payments on gilts as they fall due.
The gilt market is essentially composed of two different types of securities – conventional gilts and index-linked gilts
A conventional gilt guarantees to pay the holder of the gilt a fixed cash payment (coupon) every six months until the maturity date, at which point the holder receives the final coupon payment and the return of the principal. .The coupon usually reflects the market interest rate at the time of the first issue of the gilt The prices of conventional gilts are quoted in terms of £100 nominal.
A conventional gilt is denoted by its coupon rate and maturity for example, 4% Treasury Gilt 2016).
As with conventional gilts the coupon on an index-linked gilt reflects borrowing rates available at the time of first issue. Index-linked gilts differ from conventional gilts in that the semi-annual coupon payments and the principal are adjusted in line with the UK Retail Prices Index (RPI). This means that both the coupons and the principal paid on redemption of these gilts are adjusted to take account of accrued inflation since the gilt was first issued.
Gilts can be purchased directly at the time of the original issue or subsequently via a bank stockbroker or the Government Debt Office.
Gilts are useful for client needing a guaranteed level of income, maybe to fund school fees or nursing home fees.
Any income received is subject to Income Tax but should a gain be made at redemption no CGT is payable.
How Nicholls Stevens can help
We can assist you in buying gilts via the Government Debt Office