Gilt Ladder Builder · Methodology

How the calculation works

Illustrate the purchase cost, scheduled cash flows, estimated coupon tax, price-to-par change, after-tax annualised return and interest-rate sensitivity of up to six directly held conventional UK gilts matched to chosen maturity amounts.

Return to calculator

Included

Conventional gilts in the latest local DMO issue catalogue
A user-entered settlement date
User-entered all-in or dirty prices
Target nominal redemption cash
Per-rung dealing costs
Scheduled semi-annual coupons
A selected marginal savings-income tax rate
XIRR for each rung and the combined ladder
Redemption concentration and weighted term
Approximate modified duration and one-percentage-point sensitivity

Outside this method

Live, delayed or executable market prices
Index-linked gilts
Gilt funds and ETFs
Bid-offer spread unless included in the entered price
Accrued Income Scheme tax adjustments
Ex-dividend entitlement conventions
Coupon reinvestment
ISA and pension subscription rules
A recommendation to buy or sell a security

Calculation

Core formulas

Nominal amount

Nominal = target cash at redemption

A conventional gilt is assumed to redeem at £100 for each £100 nominal, so the target redemption amount is also the nominal holding.

Security purchase cost

Cost = nominal × all-in price ÷ £100 + dealing cost

The user-entered all-in price is expected to include accrued interest; dealing cost is added separately.

Semi-annual coupon

Coupon cash = nominal × annual coupon rate ÷ 2

Payments are placed on the two DMO coupon dates after settlement and up to maturity.

Coupon tax

Estimated tax = total scheduled coupons × selected savings-income tax rate

Allowances, other savings income, tax-year timing and the Accrued Income Scheme are excluded.

Price-to-par change

Redemption nominal − security purchase cost before dealing fee

This can be positive below par or negative above par. It is treated as CGT-exempt for a qualifying direct gilt held by a UK individual.

After-tax annualised return

XIRR(−purchase cost, after-tax coupons, nominal redemption)

Actual day counts between the entered settlement and scheduled cash-flow dates are used. Coupons are not reinvested.

Modified duration

Macaulay duration ÷ (1 + after-tax ladder yield)

A one-percentage-point yield rise is approximated as a price change of minus modified duration percent, before convexity.

Timing convention

When cash flows occur

Coupons strictly after the entered settlement date and no later than the stated maturity are included. The DMO coupon dates are interpreted as semi-annual UTC dates. Purchase cash occurs on the entered settlement date and nominal redemption occurs on the DMO maturity date.

Limitations

What the result cannot establish

The DMO catalogue identifies securities and contractual dates but does not provide the executable price required for a decision.
Coupon entitlement around ex-dividend dates can differ from the simple after-settlement rule.
Applying one tax rate to all coupons ignores Personal Savings Allowance usage, changing marginal rates and tax-payment timing.
Using a dirty price economically captures accrued interest but the tax estimate does not apply an Accrued Income Scheme purchase adjustment.
XIRR assumes the entered cash-flow pattern and UK government payment; selling early can produce a materially different result.
Modified duration is a local linear approximation and can misstate large yield moves or changes in the yield curve.

Reference tests

Numerical checks

Case	Inputs	Expected result
At-par zero-coupon scaffolding	£10,000 redemption; £100 all-in price; £0 dealing cost; zero coupon; one year	£10,000 cost, £10,000 redemption and 0% annualised return
Price discount	£10,000 redemption; £95 all-in price; £0 dealing cost	£9,500 security cost and £500 price-to-par change
Coupon tax	£10,000 nominal; 1% coupon; two full annual coupons; 40% tax	£200 gross coupons and £80 estimated coupon tax
Equal ladder	Three £10,000 redemption rungs	£30,000 total redemption and 33.3% largest-rung concentration

Evidence

Sources

UK Debt Management Office — Gilts in Issue report UK Debt Management Office — About gilts HMRC — Gilt-edged securities exempt from Capital Gains Tax HMRC — Accrued Income Scheme helpsheet Bank of England — UK yield curves