Index Linked Gilts

Index-linked gilts are loans to the UK government in return for a rate of return above inflation. The bulk of the return is usually the inflationary element, in the form of capital appreciation that is free of capital gains tax. There is no risk of default on any index-linked gilt, because they are guaranteed by the UK government. These gilts pay a semi-annual income (coupon) payment and return the original capital (redemption value) on the maturity (redemption) date. Both the coupon payment and redemption value vary in line with the RPI index (a measure of inflation).

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Five year percentage change in FTSE Index Linked Gilts All Stocks Index, source Bloomberg.