Introduction To Gilts

Gilt Securities

Factfile: Gilts

Lump sum investments: Yes

Regular premiums allowed: No

Flexible payments allowed (stop/start/additional/increase/decrease): No

Investment Risk Profiles Available:

• No Risk funds available
• Low Risk funds

Changing funds and risk profile allowed: No

Moving to another company allowed: No

Life Insurance Included: No

Personal Tax Benefits:

• Capital gains tax free
• Interest paid gross but is taxable

Can be held inside Trust: Yes

Suitable For:

• Children
• Adults
• Business
• Trusts
• Charities
• Non Tax Payers
• Basic Rate Tax Payers
• High Rate Taxpayers

Insolvency Compensation Limits:

Compensation Limits: Not applicable

Secured by British Government i.e.  virtually guaranteed security

Brief Description:

Gilts are "Gilt Edged British Government Securities".  They are so called this because they have the 'gilt edged' backing of the British Government.  When you purchase a Gilt you are literally lending some of your money to the Government for a given return.  You have effectively bought shares in Britain.

You can invest in gilts directly or you can invest in Gilt funds as part of an investment policy.  We suggest you look for fund names such as fixed interest fund and gilt fund.

Types and categories of Gilt

Gilts are investments provided by the Government when they want to borrow money.  If you buy a Gilt you will receive a fixed rate of interest for the rest of its life and then the original capital back at its redemption date.

Gilts are classed as one of the safest types of investment as they are backed by the Government.

If you buy a Gilt you cannot cash it in but you can sell it on the Stock Market.  Prices for buying and selling Gilts change on a daily basis but there are generally lots of dealers wanting to buy and sell.  Remember, you may get more or less than what you paid for it, depending on demand.

Gilt prices change because people buying them change their views about interest rates.  For example:

• If a gilt paid a fixed rate of interest of 10% and general interest rates were 5%, this would seem a high return and people would be prepared to pay more for the purchase of the Gilt. 
• Conversely, if general interest rates were 15% demand would be low for the Gilt because it paid lower interest than could be received on a bank account.

There are five types of Gilt:

• Short dated Gilt - 5 years or less until they are redeemed by the Government
• Medium dated Gilt - 5 - 15 years until they are redeemed by the Government
• Long dated Gilt - over 15 years until they are redeemed by the Government
• Undated Gilt - these types of Gilt have no set redemption date
• Index-linked  Gilt - the return paid out is linked to changes in RPI (Retail Prices Index)

These five types of Gilt can be split into three interest rate incomes, known as coupons, categories:

• Low coupon Gilt - aimed towards capital growth
• Medium coupon Gilt - aimed towards income and capital growth
• High coupon Gilt - aimed towards producing income

Request our expert advice or visit our Investment Shop and choose your own investment. 

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