
How to invest in gilts direct: You can buy and hold, or try to exploit the tax perks - here's what you need to know
You receive a regular income, known as the coupon, and if you hang on until the maturity date you get all your money back - except in the unlikely event the UK defaults on its debt.
DIY investing brokers have made it easy to buy single gilts and stash them in your Isa, while financial advisers increasingly tend to recommend them to higher earners who have already maxed out their Isas for the tax perks.
Although you can certainly opt to buy and hold, if you are able to sell at a profit earlier you can make a saving on capital gains tax, which isn't levied on gilts.
Many individual investors find it easier to buy a bond fund and let a manager do the hard work - see more on the this below.
But if you are keen to buy gilts direct and willing to do your homework, here's what you need to know.
What are gilts?
Governments around the world issue bonds in order to borrow money to help pay their bills - the UK's bonds are called 'gilts'.
Investors, including banks, insurers and pension funds, as well as individuals, buy them in order to earn a return.
Governments issue bonds with a range of different maturities - three months, a year, 10 years, 30 years and so on. This is the length of time governments are giving themselves to pay back investors.
Short-dated bonds are those that mature fast, and in normal times are deemed less risky as a result.
Long-dated bonds are those where investors have to wait a while to see their money again, and are regarded as riskier because there is more time for things to go wrong.
This means rates of return are low on gilts that mature quickly, but can vie with current savings rates or beat them on the longer-dated ones.
You can get your money back at the end, or sell earlier on the secondary market and, depending on values of gilts then, may get more than you originally paid.
Some investors buy gilts direct that will mature serially over time - something known as building a 'gilt ladder'.
The value of a bond is both the capital gain that you could make should you sell it and the coupon that you receive.
Dan Coatsworth, investment analyst at DIY platform AJ Bell, says: 'Gilts may appeal to income-seekers.
'However, there are still some dangers of which patient portfolio builders should be aware, so they can factor them into their study of whether the coupon on offer is sufficient to justify these risks and that the instrument's return profile fits with their overall investment strategy, target return, time horizon and appetite for risk.'
He says investors should bear in mind the risk the issuer defaults, liquidity risk - meaning is a gilt's issue size large enough to make it easy to buy and sell in the secondary market - interest rate changes that can hit bond prices, and inflation risk which can erode your real return.
Why is buying gilts direct attractive for higher earners?
Gilts can be very tax efficient, especially for those paying higher tax rates looking to invest outside Isas and pensions.
While the coupon is subject to tax, just like cash savings interest if you exceed your personal savings allowance, price gains are exempt from capital gains tax.
This works with gilts with low coupons, where you make a gain on any uplift from your original purchase price.
But Jason Hollands, managing director of wealth manager Evelyn Partners, cautions that individual investors must be ready to do some maths regarding 'yield to maturity' and post-tax yield on gilts to make this work.
'It isn't quite as straightforward as picking the ones with the highest headline yields' he says.
'What really matters is the post tax yield to maturity and that involves calculating the different impact of tax on interest coupons and tax-exempt price gains between now and when the gilt matures.
'If you look at platforms offering execution-only dealing in gilts, the information provided is typically limited to coupon, maturity date and price – so you'd have to work out the yield to maturity yourself, and then the post-tax yield.
'An investor who is unfamiliar with direct investing in bonds might just hone in on the coupon, so it is easy to make a mistake.
'If you're looking for a more tax efficient home and better returns for a sizeable cash pile, it can make sense to speak to a wealth manager which can build a gilt ladder or a cautious cash-equivalent and shorter-dated portfolio.'
How do you invest in gilts direct
Many of the top DIY investing platforms including Hargreaves Lansdown, Interactive Investor and AJ Bell offer gilts. You can keep a check on their sites for a list of what's currently available, or you may be able to sign up for alerts on upcoming issues.
Gilts are often sold at short notice and for limited periods, and if you miss out you would have to buy on the open (also known as secondary) market when the price might already have risen.
You can also buy direct from the UK Debt Management Office, which offers a service run by Computershare. You have to be a member of its 'Approved Group', which means you live in the UK and pass its identity and money laundering rules.
If you are an existing customer at a broker it's likely your buyer status is already established, so you can purchase gilts online like any other investment.
Regarding costs, DMO charges start at 0.7 per cent or a minimum of £12.50 on gilt purchases worth up to £5,000, or check with your own platform.
Should you opt for a bond fund instead?
You can get exposure to gilts, and other overseas bonds and corporate bonds, by buying bond funds.
Here, a manager does the work of deciding which bonds to buy or sell, and spreads the risk as their value rises or falls over time.
A professional will be better placed to forecast bond market moves, watch for changes in inflation, and monitor interest rates which heavily influence bonds as investors seek to beat them.
Buying a bond fund means stumping up management fees though, and you don't get the option of holding individual bonds to maturity and getting your capital back.
Hashtags

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


The Guardian
27 minutes ago
- The Guardian
Wall Street delighted with Microsoft as it spends $100bn on AI
Microsoft, the world's second-most valuable company, is dumping enormous sums of money into its artificial intelligence efforts. At the same time, the company is earning money hand over fist. Investors are thrilled. The enterprise software giant reported fiscal fourth-quarter results that exceeded expectations on Wednesday as the company races to acquire data centers and talent, which continue to be investigated by investors. The company predicted its capital expenditure for the next fiscal year would top $100bn, a 14% increase from the year prior. It's the fifth quarter in a row that Microsoft has beaten Wall Street's expectations. Shares in the company, which is celebrating its 50-year anniversary since it was founded by Bill Gates and Paul Allen in Albuquerque, New Mexico, in April 1975, are trading a near record of $513, up 22% since the start of the year. The software giant's stock rose more than 7% in extended trading Wednesday. Microsoft, like rivals Alphabet/Google and Amazon, is in an all-out race for data center capacity to meet demand for AI. Last week, Alphabet announced it will $85bn in capital expenditures in 2025, a $10bn increase on what it estimated at the start of the year. Amazon is looking to spend $100bn over the same period. 'Cloud and AI is the driving force of business transformation across every industry and sector,' said Satya Nadella, chairman and chief executive officer of Microsoft. 'We're innovating across the tech stack to help customers adapt and grow in this new era, and this year, Azure surpassed $75bn in revenue, up 34%, driven by growth across all workloads,' Nadella said in a statement. Microsoft reported revenue of $76.4bn, against consensus estimates of $73.81bn, and earnings per share of $3.65, against estimates of $3.37. That corresponds to revenue growth of 18% year-over-year. Revenue in the same period a year earlier came in at $64.73bn. The extraordinary spending on data centers, necessary to power AI products, comes as companies are increasingly outsourcing their computing demands to the cloud. Before the earnings were released, Dan Ives, a financial analyst at Wedbush said Microsoft was on track to $4tn market value 'shortly', and $5tn over the next 18 months as shares moving up to $600 as companies accelerate their adoption of AI technologies. Sign up to TechScape A weekly dive in to how technology is shaping our lives after newsletter promotion 'This was a slam-dunk quarter for MSFT with cloud and AI driving significant business transformation across every sector and industry as the company continues to capitalize on the AI Revolution unfolding front and center,' Ives said in a statement after Microsoft's numbers were released. The extraordinary cost of hiring top AI talent is also coming into focus. OpenAI CEO Sam Altman has said Meta was offering $100m in signing bonuses to recruit talent from his company. Facebook parent Meta also reportedly offered a senior Apple engineer $200m to join its 'superintelligence' team. Microsoft, meanwhile, is reported to be offering high-level engineers a yearly salary of as much as $408,000, not including a one-time stock award of as much as $1.9m, plus an annual stock award of $1,476,000, according to Business Insider.


Reuters
27 minutes ago
- Reuters
Third Point bets on Rocket Companies, Informa, Casey's General Stores in Q2, letter says
NEW YORK, July 30 (Reuters) - Daniel Loeb's hedge fund Third Point made new bets on convenience store operator Casey's General Stores (CASY.O), opens new tab, mortgage lender Rocket Companies (RKT.N), opens new tab and British events and academic publishing group Informa (INF.L), opens new tab, the billionaire investor told clients on Wednesday. In a letter to Third Point investors seen by Reuters, Loeb wrote that the firm's flagship offshore fund returned 7.5% during the second quarter, when the new investments were initiated. The firm also "re-initiated" a position in Nvidia (NVDA.O), opens new tab, reasoning the AI chip giant had been beaten down by tariff worries and recession fears, among other things, earlier in the year but will continue to climb. Its stock price has gained nearly 30% this year. Third Point bought its stake in Rocket Companies after the company said it would buy home loan service provider Mr. Cooper Group for $9.4 billion. "We view the combination of Rocket and Mr. Cooper as a transformative, synergy-rich merger between two technology leaders in the otherwise parochial and cost inflationary mortgage industry," Loeb wrote. Mr. Cooper's servicing portfolio could feed Rocket's refinancing origination machine. Casey's General Stores, the third-largest convenience store chain in the United States by store count and the fifth-biggest pizza chain in the country, appealed because its food is consistently good, it manages to retain its staff, and it has done some smart deals to expand its footprint. "In Casey's we see a world-class management team with a differentiated mousetrap and a decade of profitable growth ahead of them," the letter said. Informa, which runs events like investment conference SuperReturn, the Dubai Air Show and the Monaco Boat Show, has a smart Middle East strategy and could have compound earnings at a double-digit rate for many years, Loeb said. Loeb also described the winners and losers during the quarter, citing his bet on U.S. Steel, which was finally sold to Nippon Steel after months of political and regulatory scrutiny, as one of the firm's top five winners. Among the losers was a bet on consumer health company Kenvue (KVUE.N), opens new tab, which makes Tylenol and Band-Aids, the company in July replaced its CEO, giving investors hope the stock price can now move higher.


The Independent
an hour ago
- The Independent
‘It's time to pay up', says Starmer in late payments crackdown
Firms which persistently pay their suppliers late are set to face fines worth potentially millions of pounds as the Prime Minister warned that 'it's time to pay up'. Sir Keir Starmer has said 'too many hardworking people are being forced to spend precious hours chasing payments' in a process which he described as 'exhausting'. As part of a drive to support small businesses, the Government is set to unveil plans to give the small business commissioner bolstered powers to fine large companies which persistently pay their suppliers late. The commissioner will also receive new powers to enforce a rule that customers must pay their supplier within 30 days of receiving a valid invoice, unless otherwise agreed, with spot checks to help identify breaches. Upcoming legislation will also introduce maximum payment terms of 60 days, reducing to 45 days. 'From builders and electricians to freelance designers and manufacturers — too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best – growing their businesses,' Sir Keir said. 'It's unfair, it's exhausting and it's holding Britain back. 'So, our message is clear, it's time to pay up. 'Through our small business plan, we're not only tackling the scourge of late payments once and for all, but we're giving small business owners the backing and stability they need for their business to thrive, driving growth across the country through our plan for change.' The crackdown on late payments is part of a wider Government package and sits alongside a move to pump £4 billion of financial support into small business start-ups and growth. This is set to include £1 billion for new firms, with 69,000 start-up loans and mentoring support. 'This country is home to some of the brightest entrepreneurs and innovative businesses in the world, and we want to unleash their full potential by giving them back time and money to do what they do best – growing our local economies,' Business Secretary Jonathan Reynolds said. 'Our small business plan – the first in over a decade – is slashing unnecessary admin costs, making it easier for businesses to set up shop and giving SMEs (small and medium-sized enterprises) the financial backing they need.' Andrew Griffith, the Conservative shadow business secretary, said: 'Cracking down on late payments will be welcome for small business but will mean nothing for the 218,000 businesses that have closed under Labour. 'The reality for businesses under Labour is a doubling of business rates, a £25 billion jobs tax and a full-on strangulation of employment red tape. 'Only the Conservatives are on the side of the makers and will support businesses across Britain to create jobs and wealth.'