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www.InvestmentGuide.co.uk List of index-linked interest stocks
STOCK
(Also called Indexed or Index Linked Gilts)
Lump sum invested with the Government in return for an interest payment which rises in line with the UK Retail Prices Index. The stock has a fixed life at the end of which the Government guarantees to repay the nominal value of 100 in full plus the rise in the Retail Prices Index since the stock was issued. Both interest and capital are index-linked.
In the list of stocks, the figure notional value gives you an idea as to the value for money of each stock. This figure is the amount of index-linking added so far to the initial issue price of the stock. When you compare it to the actual market price which the stock is offered at, the market price can be less, or it may actually be more than the notional value. Government Index-Linked Stock is an excellent long term investment for people who are risk averse, even if high rates of inflation don't return. However the prices of the stocks seem to fluctuate rather unpredictably in the short term and may suffer if the Government decides to issue a lot more of this type of stock or if interest rates rise sharply.
The French Government issues similar stocks called OATi denominated in € Euros and linked to the French or Euro price index. The US Government has some denominated in US $ and linked to the US price index, for details click here.
Who can invest Anyone.
How worthwhile Good value for higher rate taxpayers, who don't need a high income but wish to protect income and capital against inflation especially over periods of 10 years or more. The interest and repayment value depends on the current and expected rate of inflation. The prices fluctuates quite widely, especially with the longer dated stocks. But if you hold the stock until it matures, it will grow by at least the rise in retail prices from date you bought. Less suitable for non-taxpayers. In the recent times inflation, as measured by the Retail Prices Index, has been greatly reduced but recently there has been a sharp rise. Predicting the future is impossible but inflation linked stocks give you the peace of mind that your money will retain its real worth whatever happens. For amounts up to £10,000 consider instead National Savings Index Linked Certificates.
Minimum No minimum through National Savings/Bank of England but £12.50 minimum charge on purchases, none on sales. Around £5,000 through a stockbroker because of minimum commission.
Maximum None.
Suitable Lump sums.
Money back At the redemption date. Or 2 working days if you sell before then; you can sell the stock at any time at the current market price. You normally have to sell using the same type of intermediary, e.g. stockbroker or National Savings/Bank of England, as you bought with. For National Savings/Bank of England you need a separate form for each stock you sell.
Interest Variable. Changes at each interest payment to reflect changes in the Retail Prices Index over a previous 6 month period with a lag of 8 or 3 months according to the stock. When you buy a stock (or if you sell before it matures) your contract note giving details of the transaction shows accrued interest as an addition or deducton from what you pay or receive. Whether it is an addition or deduction depends on when you buy or sell in relation to the next or last interest payment date. There are special rules for taxing this, see Taxbelow.
Interest paid Half-yearly by cheque to you or direct to bank account.
Tax Interest is liable to income tax. No tax is deducted from interest on new holdings of stock purchased after that date, but taxpayers should declare the interest on a tax return. You can, however, opt to have 20% tax deducted from the interest. Before 6 April 1998 stocks bought through a stockbroker or direct from the Bank of England as a new issue, had 20% tax deducted. Since 6 April 1998 existing holders can opt to receive the interest without deduction of tax if they complete a form and return it to the Bank of England. Stocks issued through National Savings continue to have interest paid with no tax deducted. Non-taxpayers can reclaim the tax from the Inland Revenue. Higher rate taxpayers have to pay extra; basic rate taxpayers don't.
Any accrued interest added to your contract note (see Interest above) is liable to income tax. If accrued interest is deducted, you can deduct it from other interest you receive from the stock and claim a tax rebate if applicable. These rules don't apply if the nominal value of all your stocks is £5,000 or less. For more details from the taxman, see Accrued Income Scheme. Gains on stock are exempt from capital gains tax.
Fees to pay Varies, e.g. ½% (min. £18.50, max. £150) to around 1½% on first £7,000 (minimum £10 to £30). Same when you sell. None if you buy a new issue direct or hold to redemption.
Passbook None. Stock certificate or statement of ownership from your stockbroker if your stock is held by your stockbroker as nominee or more preferably in your own name as an individual member of Crest if your stockbroker offers this service.
Children Stock can be bought in a child's name only through National Savings/Bank of England. Otherwise stock for the under 18's must be held in an adult's name.
Risk None if you hold until redemption. Some if sold before, but interest rate rises will not cause the price to fall as much as it does with stocks which have a fixed rate. Stocks with a longer period to redemption tend to fluctuate in price more than those with a shorter period.
How to invest Choose a stock from the list which matures close to the date you want your money back (e.g. expected retirement date) or invest in a number of different stocks so you have money maturing over a number of years.
Where from A stockbroker by phone or on-line. Compare commission. With a stockbroker you can put a limit on your sale or purchase price and usually you can trade by phone and know the price you are dealing at; you can't with the Bank of England.
List of index-linked interest
stocks
Other types of bond or stock
Last updated 17
June 2010