Why should I invest in Gilts now?
Because of the rising interest rates during 2023, Gilts are now yielding much higher returns than they were in previous years when low-interest rates dominated the market environment. Gilts can provide an attractive return without taking on the additional risk that the wider corporate bond or equity markets present.
Gilts as a tax-exempt cash alternative:
Gilts are capital gains tax exempt, and the ones issued during the low-interest rate environment pay most of their return as capital gains. All interest payments made from Gilts are tax declarable. Gilts can be sold and made liquid within a few days, whereas many higher-rate interest cash accounts tie your money up.
In the event of a provider failure, cash protection is limited to the FSCS limit of £85,000 whereas Gilts are fully backed by the UK Treasury.
Gilts as a liability planning tool that could help you pay for school fees or a mortgage:
Because Gilts have known returns at maturity, you can purchase them knowing the value you will receive when a liability such as a mortgage or school fees is due. A GILT maturity ladder can be created to coincide with liabilities that are due annually with multiple Gilts maturing to match the liabilities as they become payable. This way, you can be certain that your money is working for you and will deliver when you need it to.
Invest in Gilts with Tideway
Tideway charges 0.5% pa for a Gilt portfolio; this includes the advice you will need to decide which Gilts to buy, all dealing costs, custody costs and online and quarterly valuations and performance reports.
Do you want to learn more about how Gilts could be the right investment for you?
A gilt is a UK Government liability denominated in sterling, issued by HM Treasury, and listed on the London Stock Exchange. The name Gilt comes from historical certificates issued by the British government, which featured gilded edges.
The short answer is yes, but gilts are specialist investments and the suitability of a gilt for a pension needs to be considered. People considering this option should seek professional advice as each individual’s circumstances are different.
Gilts are free from capital gains tax. Therefore, now they can be an attractive tax-saving vehicle, particularly for higher and additional rate taxpayers. The interest (or coupon) paid by gilts is liable to income tax, you can offset this against your personal savings allowance but then it is taxed at your marginal income tax rate. Gilts issued during times of low interest rates have a very low coupon rate, resulting in minimal interest payouts. Consequently, most of the overall returns from these gilts are expected to come from capital gains rather than income.
Private investors can purchase gilts already in issue through an adviser, a stockbroker, a bank or a DIY investment platform. New issue gilts are not easily accessible to private investors.
A gilt is a bond (or fixed-income security) that is issued by the UK government. Bonds are debts that can be issued by various entities including governments, corporations, and municipalities. As a gilt is issued by the UK government it is considered a lower risk as it is backed the UK taxpayer rather than a corporate bond that is backed by the underlining corporate.
When interest rates rise, the price of existing gilts (and other fixed-income securities) fall. This inverse relationship between interest rates and bond prices is a fundamental concept in bond markets and is known as interest rate risk. Gilts with longer maturities have more interest rate risk
Gilts can be an essential component of a diversified investment portfolio, providing the lower risk and more secure element of the portfolio complementing other asset riskier asset classes like equities.
