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Gilts are similar to corporate bonds. By buying corporate bonds, you lend money to a corporation or a company. With Gilts you are lending money to the UK Government. The Government raises money for public spending by issuing Gilts. In return the investor receives a fixed level of income until maturity. This is known as the coupon. The investor receives the coupon usually every six months until the Gilt matures. At maturity the investor will receive back the nominal value of the Gilt.

Index-Linked Gilts pay a lower level of income and the capital value rises or falls in line with the RPI index. The coupon pays interest relative to the value of the index linked Gilt also in line with RPI. This helps inflation proof the income from an Index-Linked Gilt and can also increase the value of the original investment.

Gilts are traded daily on the stock market allowing investors to sell Gilts on any trading day. The value of Gilts can fluctuate and therefore selling Gilts before their maturity date could provide the investor with a capital gain or loss. Importantly, gains on Gilts are not subject to CGT.

 

The major factors affecting Gilts are changes in interest rates and credit risk, measured by the quality rating from the rating agencies such as S&P and Moody's, currently AAA (S&P) and Aaa (Moody's), which is the highest rate available.
Gilts are a classed as a low risk investment and can be placed inside ISAs and SIPPs to provide tax free income.

We frequently consolidate ISAs into one simple to control ISA portfolio through Raymond James to buy corporate bonds and Gilts for clients.

Contact us if you would like to know more about fixed interest investing.

 

 
 
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