Our Wealth Manager, Sam Ratnage, talks about why people should consider investing in Goverment Gilts now.
Gilts now have plenty to offer savers and investors, said Sam Ratnage, chartered financial planner at wealth manager Tideway Investment: “They weren’t appealing 18 months ago but are now an attractive way to meet short-term savings objectives.”
Gilts are issued in units of £100, with a wide range of maturity dates, between three months and 50 years. Most private investors do not buy newly-issued gilts but older ones, which are bought and sold on the secondary market.
Gilts issued just a few years ago yield as little as 0.25 percent but this means they are cheap to buy, as vendors have slashed prices to attract buyers.
Ratnage said this offers savers an opportunity to generate tax-efficient returns, above and beyond their £20,000 Isa allowance. He takes the example of a gilt that is set to mature in October 2026 and pays a low annual coupon of 0.4 percent. That does not seem a great return but there is a twist. Each £100 gilt now costs just £86 to buy, yet when the bond is redeemed holders get £100.
This gives them £14 for each £86 they invested, which works out as a capital gain of 16.3 percent.
Crucially, that is a tax-free return because there is no capital gains tax on gilts.
On top of that, the investors will get the gilt’s annual 0.4 percent yield, which will total around 1.4 percent over the remaining term and is subject to income tax at the investor’s marginal rate.
Ratnage said the total return is 17.7 percent, equivalent to 5.4 percent a year, which is better than any instant access savings account: “It is almost as flexible, as gilt investors can typically access their money within seven days if required.”
The total return is even higher for higher rate 40 percent and additional rate 45 percent taxpayers, because of that tax-free capital gain, said Ratnage: “It’s the equivalent of earning 8.6 percent a year gross for a higher-rate taxpayer, and 9.4 percent gross for an additional rate taxpayer. It’s a fantastic opportunity.”
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