On a practical level what happens to a gilt on maturity

[Jon277]

I have purchased some gilts for the first time through interactive investor.

I am going to hold them to maturity - what happens on that date?

Do interactive investor automatically redeem them to the government or do I need to do some sort of sale?

Jon

[Itsallaguess]

I have purchased some gilts for the first time through interactive investor.

I am going to hold them to maturity - what happens on that date?

Do interactive investor automatically redeem them to the government or do I need to do some sort of sale?

In 2023 I purchased my very first UK Gilt - TR24, an index-linked gilt with a maturity date of 22nd March 2024.

I left them until maturity in my shares account, and was redeemed in full on the maturity date automatically, with no action required at all by me.

Cheers,

Itsallaguess

[hiriskpaul]

Yes, just sit tight. Redemption of gilts and other bonds happens automatically. You should get the redemption payment the same day, but don't be too surprised if you have to wait a day or two. The final coupon may come separately from the redemption payment as well, so don't be concerned if that happens!

[daveh]

So TN25 matured today.

Just checked my account and the cash is already there, but the entry was a bit odd. Lets say I had 10,000 TN25. There are three entries,

1) Settlement for £10,000: Account balance £10,000
2) Corporate action for £10,000: Account balance £20,000
3) Debit for -£10,000: Account balance £10,000

So it all works out in the end, and the correct amount of cash is awaiting me reinvesting in a new gilt (probably T26A and TN28) this afternoon once the coupons turn up.

So far the only coupon to appear is for T26. I'm also expecting coupons for the matured TN25, and for TN28 and TG31. I expect they will have turned up by this afternoon.

[DeepSporran]

No sign of any settlement of my TN25 at HL so far. Neither coupon nor Principal. No panic though, it’ll turn up later today I expect.

Incidentally, T26 coupon was paid yesterday because it’s a 30.01.2026 maturity rather than 31.01.2026.

[Itsallaguess]

So TN25 matured today.

Just checked my account and the cash is already there

Same for me in my Halifax account.

Still waiting on the final coupon but I remember last year when my TR24 matured, it was a little later in the day when the coupon turned up.

Cheers,

Itsallaguess

[daveh]

No sign of any settlement of my TN25 at HL so far. Neither coupon nor Principal. No panic though, it’ll turn up later today I expect.

Incidentally, T26 coupon was paid yesterday because it’s a 30.01.2026 maturity rather than 31.01.2026.

I'd forgotten that it was yesterday. Thought it was a bit early for HSDL to have credited the coupon. Coupons and dividends usually turn up in the afternoon at HSDL.

[Johnspenceuk]

So TN25 matured today.

Just checked my account and the cash is already there, but the entry was a bit odd. Lets say I had 10,000 TN25. There are three entries,

1) Settlement for £10,000: Account balance £10,000
2) Corporate action for £10,000: Account balance £20,000
3) Debit for -£10,000: Account balance £10,000

So it all works out in the end, and the correct amount of cash is awaiting me reinvesting in a new gilt (probably T26A and TN28) this afternoon once the coupons turn up.

So far the only coupon to appear is for T26. I'm also expecting coupons for the matured TN25, and for TN28 and TG31. I expect they will have turned up by this afternoon.

Ditto
My TN25 was in my iweb account about 8am and the coupon arrived this afternoon. I like these gilts.

Already spent most of it on a cruise.

John

[monabri]

I have purchased some gilts for the first time through interactive investor.

I am going to hold them to maturity - what happens on that date?

Do interactive investor automatically redeem them to the government or do I need to do some sort of sale?

Jon

I held TN25 with ii. it matured today. My account was auto-credited with the maturity value and the last coupon. I had to do ...nothing more!

[Newroad]

Me too, Monabri.

However, if I read the transaction history right (on IBKR) the coupon came yesterday (or overnight) whereas the maturity value came today.

Regards, Newroad

[GoSeigen]

Ditto
My TN25 was in my iweb account about 8am and the coupon arrived this afternoon. I like these gilts.

Already spent most of it on a cruise.

John

??? You like gilts because payments due to you get automatically credited to your broker account? Is that what you're saying? And you spent most of your 0.125% coupon on a cruise? Do you mean you bought yourself a beer with it on the cruise or you paid for the actual cruise? In which case your holding must have been north of £1m. With that sort of wealth it's hardly surprising you can splash out on a cruise whenever it takes your fancy. Or do you mean you spent most of the capital payment on the cruise? In which case what has that got to do with gilts? You can spend your capital whenever you like from whatever source (bank accounts being the obvious one and they also manage your interest and capital without further intervention), so I don't understand how gilts help one to do that.

So many questions but all in all a very curious post from what appears to be a noob gilt investor. Out of curiosity, what was the real (after inflation) return on that investment?


GS

[Itsallaguess]

Ditto

My TN25 was in my iweb account about 8am and the coupon arrived this afternoon. I like these gilts.

Already spent most of it on a cruise.

??? You like gilts because payments due to you get automatically credited to your broker account? Is that what you're saying? And you spent most of your 0.125% coupon on a cruise? Do you mean you bought yourself a beer with it on the cruise or you paid for the actual cruise? In which case your holding must have been north of £1m. With that sort of wealth it's hardly surprising you can splash out on a cruise whenever it takes your fancy. Or do you mean you spent most of the capital payment on the cruise? In which case what has that got to do with gilts? You can spend your capital whenever you like from whatever source (bank accounts being the obvious one and they also manage your interest and capital without further intervention), so I don't understand how gilts help one to do that.

So many questions but all in all a very curious post from what appears to be a noob gilt investor.

Out of curiosity, what was the real (after inflation) return on that investment?

Blimey GS - did you get out the wrong side of the bed this morning? :O)

I can't speak for John, but as a self-confessed 'noob gilt investor' myself, I can tell you why I like them...

• They currently allow a CGT-free gain to be made on any capital-uplift when held in unsheltered share-accounts.

• Low-coupon options can exist that can help holders stay within their tax-free interest-allowance, currently £1000 for this tax-year.

• They can offer an attractive low-risk alternative for 'parked capital' that might otherwise simply be held as un-invested cash

• The ability to 'ladder' a number of different gilt maturities can offer a welcome set of 'known' future cash-flow options for someone looking for guaranteed drum-beat returns over near and medium-term yearly time-scales, where gilts are planned to be held to maturity

Regarding your question on real-returns, that perhaps becomes less of an issue where gilt-investors might specifically be looking to park cash that might otherwise attract ZERO returns over the invested period, which has certainly been the particular use-case with my own entry into a couple of gilt-issuances over the last couple of years, where delivered returns have been well into the 'much better than nothing' ball-park given my particular circumstances.

As a relatively new gilt-investor, I'm very grateful that these useful options were both exposed and explained in detail by more experienced posters, yourself included, and it's certainly the case that learning about them over recent years and taking advantage of the above points has benefited me greatly when I consider the potential opportunity-cost were I not to have done so, and I provide below a link to a 2023 thread where my interest in gilts crossed from curious-bystander into my first toe-in-the-water -

Index Linked Gilts - a possible walk-through?

https://www.lemonfool.co.uk/viewtopic.php?f=52&t=40044

Cheers,

Itsallaguess

[daveh]

I took like gilts at the moment and am a relatively new gilts investor. Two have matured so far TN24 and TN25.

I started investing in them when interest rates went up. I have a few k sitting in cash for emergencies and to replace my car (probably this year). I couldn't move the money into ISAs as I'd used up the allowance with a mix of new money and moving investments from my GIA to reduce dividends below the dividends allowance and use the CGT allowance as that was also reducing. When interest rates went up my interest income was going to breach the £1000 allowance so gilts with low coupons were a way of avoiding that, getting a return at a similar level to what I was receiving from savings (more if you account for the fact I'd be paying tax if I'd left the money in savings accounts) with limited risk. I've also laddered the guilt holdings so they mature over a spread of dates, and when they mature I can either reinvest in longer dated gilts or use the cash for that new car, or emergency spending. I'm grateful for the suggestions here as it might not have come to my attention, though II have been mentioning them recently too.

[Lootman]

you spent most of your 0.125% coupon on a cruise? Do you mean you bought yourself a beer with it on the cruise or you paid for the actual cruise? In which case your holding must have been north of £1m. With that sort of wealth it's hardly surprising you can splash out on a cruise whenever it takes your fancy.

Blimey GS - did you get out the wrong side of the bed this morning? :O)

I can't speak for John, but as a self-confessed 'noob gilt investor' myself, I can tell you why I like them...

• They currently allow a CGT-free gain to be made on any capital-uplift when held in unsheltered share-accounts.

• Low-coupon options can exist that can help holders stay within their tax-free interest-allowance, currently £1000 for this tax-year.

• They can offer an attractive low-risk alternative for 'parked capital' that might otherwise simply be held as un-invested cash

• The ability to 'ladder' a number of different gilt maturities can offer a welcome set of 'known' future cash-flow options for someone looking for guaranteed drum-beat returns over near and medium-term yearly time-scales, where gilts are planned to be held to maturity

As always, IAAG clearly states the issues here. Gilts used in this way are a tax-advantaged way for wealthy investors to manage cash. So, not using gilts as an investment, but rather as a tax-friendly store of liquidity.

Another benefit is the lack of credit risk with having money parked with HMG. In that sense, rather like NS&I products, you should not have to worry about issuer risk or the cap on government insurance for losses.

Note however that this opportunity only really exists because of the freakishly low interest rates we had for a few years because of ZIRP. Those 0.125% and 0.25% coupons on some gilts provide an opportunity for tax-free accretion instead of taxable interest. Although for most of my investing life we had the opposite situation i.e. gilts trading at a premium, which is very tax-inefficient because you cannot deduct the inevitable capital loss.

So whilst GS cannot imagine having £1,000,000 in a gilt issue, I can. Your notional annual taxable income is only about £1,250 or £2.500 (a bit more in practice due to the discount). The rest of your return comes tax-free and does not even have it be declared.

The one problem with doing that is that you are locking into sterling, and longer-term there has been an opportunity cost to being over-weight sterling versus other currencies.

I also would not do it with long-dated issues, as that introduces other risks.

[GoSeigen]

Blimey GS - did you get out the wrong side of the bed this morning? :O)

Quite possibly

I'm bemused at all the interest in these things at such a poor time for them. Really could have used your support ten years back when they were returning 15-30% real some years and everyone seemingly was bashing them with their Wisdom about imminent inflation.

Now I feel my hunch is sadly coming true, that most of these are going end up in the hands of private investors who will directly bear the brunt of the losses on them -- on top of the losses they've already suffered collectively via the APF holdings.

Tomorrow will be an interesting day to see what happens to bond yields.



GS

[Itsallaguess]

I'm bemused at all the interest in these things at such a poor time for them. Really could have used your support ten years back when they were returning 15-30% real some years and everyone seemingly was bashing them with their Wisdom about imminent inflation.

Now I feel my hunch is sadly coming true, that most of these are going end up in the hands of private investors who will directly bear the brunt of the losses on them -- on top of the losses they've already suffered collectively via the APF holdings.

Tomorrow will be an interesting day to see what happens to bond yields.

There's clearly going to be a different set of outcomes between people trading gilts and people purchasing them with the sole intention of keeping them to maturity, where outcomes can be more certain, and I'm not sure how helpful it is to discussions like these to conflate the two groups or to make assumptions that might not reflect peoples actual intentions.

I accept that it's often difficult to judge gilt-holders intentions without specifically gaining additional details...

Certainly in the small number of relatively short-term gilt transactions that I've made myself, at a one-year holding period and also two-years, roughly, then I've been more than happy with the outcomes given the alternative options I had available for the unsheltered capital at the time, and my specific low-risk criteria for it, but I suspect I might well have had much lower requirements for such returns than perhaps you might have been happy with...

Cheers,

Itsallaguess

[daveh]

I'm bemused at all the interest in these things at such a poor time for them. Really could have used your support ten years back when they were returning 15-30% real some years and everyone seemingly was bashing them with their Wisdom about imminent inflation.

Now I feel my hunch is sadly coming true, that most of these are going end up in the hands of private investors who will directly bear the brunt of the losses on them -- on top of the losses they've already suffered collectively via the APF holdings.

Tomorrow will be an interesting day to see what happens to bond yields.

There's clearly going to be a different set of outcomes between people trading gilts and people purchasing them with the sole intention of keeping them to maturity, where outcomes can be more certain, and I'm not sure how helpful it is to discussions like these to conflate the two groups or to make assumptions that might not reflect peoples actual intentions.

I accept that it's often difficult to judge gilt-holders intentions without specifically gaining additional details...

Certainly in the small number of relatively short-term gilt transactions that I've made myself, at a one-year holding period and also two-years, roughly, then I've been more than happy with the outcomes given the alternative options I had available for the unsheltered capital at the time, and my specific low-risk criteria for it, but I suspect I might well have had much lower requirements for such returns than perhaps you might have been happy with...

Cheers,

Itsallaguess

I'm with you here. I'm holding short dated gilts (out to 2031) with a low coupon as a place for my non sheltered cash to avoid the tax I would have to pay if I held in a savings account. So far two of my gilts have matured TN24 and TN25.

I held TN24 from August 2023 to maturity and my XIRR was 4.30%. A little less than was quoted when bought(4.58%) but accounted for by costs

I held TN25 from August 2023 plus I transferred in the proceeds from TN24 when it matured. XIRR of 4.69%.

They are doing what I want, giving a similar return to a savings account with minimal risk and no tax (for my situation). I have bought a selection of maturity dates so I can make a decision on whether to reinvest in another low coupon gilt, or use the money if needed. Plus if I do need to sell before maturity in an emergency the fact they are close to maturity is likely to minimise any chance of loses (as the price is generally going to move towards the maturity price as the time to maturity reduces).

[GoSeigen]

I'm bemused at all the interest in these things at such a poor time for them. Really could have used your support ten years back when they were returning 15-30% real some years and everyone seemingly was bashing them with their Wisdom about imminent inflation.

Now I feel my hunch is sadly coming true, that most of these are going end up in the hands of private investors who will directly bear the brunt of the losses on them -- on top of the losses they've already suffered collectively via the APF holdings.

Tomorrow will be an interesting day to see what happens to bond yields.

There's clearly going to be a different set of outcomes between people trading gilts and people purchasing them with the sole intention of keeping them to maturity, where outcomes can be more certain, and I'm not sure how helpful it is to discussions like these to conflate the two groups or to make assumptions that might not reflect peoples actual intentions.

I accept that it's often difficult to judge gilt-holders intentions without specifically gaining additional details...

Certainly in the small number of relatively short-term gilt transactions that I've made myself, at a one-year holding period and also two-years, roughly, then I've been more than happy with the outcomes given the alternative options I had available for the unsheltered capital at the time, and my specific low-risk criteria for it, but I suspect I might well have had much lower requirements for such returns than perhaps you might have been happy with...

Cheers,

Itsallaguess

Gilts are FIXED INTEREST. Purchasers need to think about what that means in terms of inflation/in a rising-interest-rate environment. Whether holding to maturity or not.

Other investments are available.


GS
P.S. Very short-term gilts are practically cash. I've put on record that if I were to buy gilts they would be short-dated. Fine. But like cash they offer scant protection against rising inflation and yields. Haven't looked lately but not so long ago linker real yields were just 1%.

[Itsallaguess]

Gilts are FIXED INTEREST.

Purchasers need to think about what that means in terms of inflation/in a rising-interest-rate environment. Whether holding to maturity or not.

Of course, but please appreciate that uninvested capital held in some share accounts are also sometimes being held at FIXED INTEREST, and in cases where that FIXED INTEREST is a grand total of 0%, then having options available where returns might be considered safe, known, and ABOVE 0% can be attractive in some particular situations...

Other investments are available.

And now that you've seen that there are a number of gilt holders where you now better understand their attractions to short-term gilts where they are held to maturity with otherwise uninvested capital held in non-sheltered accounts, where low-coupon interest benefits and no CGT to be paid on the capital uplift, along with relatively secure 'outcomes' in terms of underlying risk of delivery, are some of the main drivers of that attraction, I think I can probably speak for many such holders that we'd be very interested to hear about any of those 'other investments' that might deliver on the same set of particular attractions...

Cheers,

Itsallaguess

[hiriskpaul]

Gilts are FIXED INTEREST.

Purchasers need to think about what that means in terms of inflation/in a rising-interest-rate environment. Whether holding to maturity or not.

Of course, but please appreciate that uninvested capital held in some share accounts are also sometimes being held at FIXED INTEREST, and in cases where that FIXED INTEREST is a grand total of 0%, then having options available where returns might be considered safe, known, and ABOVE 0% can be attractive in some particular situations...

Other investments are available.

And now that you've seen that there are a number of gilt holders where you now better understand their attractions to short-term gilts where they are held to maturity with otherwise uninvested capital held in non-sheltered accounts, where low-coupon interest benefits and no CGT to be paid on the capital uplift, along with relatively secure 'outcomes' in terms of underlying risk of delivery, are some of the main drivers of that attraction, I think I can probably speak for many such holders that we'd be very interested to hear about any of those 'other investments' that might deliver on the same set of particular attractions...

Cheers,

Itsallaguess

Indeed. I rolled a six figure sum into T26 today, for an elderly relative. T26 pays 0.125% interest so most of the return is from the tax free capital gain. I got a yield to maturity of 3.61%. Better deposit rates are available, but any interest she earns pushes more of her dividend income into 33.75% tax, so she would need more than 5.43% deposit interest to make the deposit worthwhile.