Gilts (UK Government Bonds) Guide

Gilts or Gilt Edged Securities are of value to people who need a predictable, fixed income with a guarantee of the return of capital at a known time.

The stock is purchased at the market price, which will vary over time. At a fixed date the face value of the stock will be returned or 'redeemed'.

Despite the stock having a redemption date it can be sold wholly or in part at any time at the current market price. The investor is not 'locked in' and there is no penalty for selling.

Alternatively, the investor can continue to receive a fixed income until the redemption date of the stock. At this time, the government will repay the actual face value of the stock, which might be more or less than the price originally paid, giving a capital gain or loss.

The rate of interest on a particular stock is fixed at the time of issue and does not change when other interest rates rise or fall. The income is therefore predictable but does not necessarily keep pace with inflation. The price of the stock varies depending on interest rates in general.

Gilts are useful investments to buy when interest rates are high and are likely to fall. If general interest rates fall, the price of the stock rises and it may be sold at a profit. Conversely, if interest rates are low, the price of Gilts is high and a loss can be anticipated if the stock is held to redemption.

Buying and selling Gilts - Many gilts are available from the National Savings Register via the National Savings at Blackpool. These pay interest without tax being deducted but the interest is taxable if you are a taxpayer. The charges to buy or sell gilts through the National Savings register are very low. Gilts can be sold at any time, transactions taking about one week.

Gilts can also be purchased through banks or stockbrokers but dealing charges are much higher. Interest on Gilts so purchased is paid with tax deducted at source. A tax certificate is issued which can be used to support a reclaim, these certificates are valuable and should be saved.

A explanatory booklet, 'Investing in Gilts', published by the Bank of England, is available on request at some Post Office Counters or from the Bank of England. There is also a National Savings leaflet on the same subject freely available from all Post Offices.