A clever inheritance tax cut could be a game-changer. But here's the catch: it might not happen. Are you a gilts investor? Share your thoughts! Email money@telegraph.co.uk.
A few years back, Telegraph Money revealed how everyday investors were quietly making a fortune by buying up the nation's debt.
The idea is simple: buy British government bonds (gilts) at a discount and hold them until maturity. Since the UK government has never defaulted, you're almost guaranteed to get back the full value of the bond. Sweet deal, right?
The icing on the cake? Thanks to a tax loophole, the profit from selling a gilt is tax-free. You can even stash them in an ISA or SIPP. With pension and ISA allowances shrinking, gilts are becoming an increasingly attractive option for those seeking tax-free returns.
So, it's no surprise that many people have caught on to this strategy, including some Telegraph readers, judging by the emails I've received. This has caught the attention of the Bank of England.
In a staff blog post, two experts from the central bank's various markets divisions declared this a "global phenomenon."
They noted that while bond yields have stabilized compared to the chaos following the 2022 mini-Budget, retail investor demand remains strong.
Despite retail investors owning only about 4% of all gilts, the change is significant.
But what if retail investors like you and me became major players? This would be a boon for the Chancellor, who's always looking to reduce borrowing costs, and the Bank itself.
Andrew Bailey, the Bank of England Governor, warned MPs that hedge funds now dominate Britain's £3 trillion gilt market. While their extra cash supports government borrowing, it poses a risk to financial stability.
As James Sproule, the chief economist at Handelsbanken UK, explained, this reliance on strangers is risky. These investors are often highly leveraged, making them more volatile than the average investor.
Encouraging more domestic investors to buy our debt makes sense. It would stabilize the nation's debt holders and promote saving.
Simon French, the chief economist at Panmure Liberum, suggests a bold move: making these investments inheritance tax-free. He argues that while it might cost the Treasury in death duties, the immediate gain from lower borrowing costs could be significant.
"We wouldn't be surprised if this is under active consideration," he wrote.
"A mid-2026 Budget could justify such a move, incentivizing a broader domestic base of gilt ownership."
However, Rachel Reeves' chancellorship doesn't hint at such a move. An inheritance tax giveaway, even if it funds extra government spending, would likely face opposition from within her party.
For now, if you're interested in joining the growing army of amateur gilt investors, check out our step-by-step guide.
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