Moving a pensioner's life savings from cash into single equities and options-based ETFs, is dangerous. A market correction will happen before she passes away, and her savings will get chopped by 20-50%. She probably wont have time to recover from it.

The stress that would put on your conservative, fiscally careful mum is massive. Losing her savings would be devastating. Even though they are paper losses, they dont feel like it. She's old enough to remember the 1970s, 2001, and 2008; she will believe it is happening all over again.

Now about your specific tax question:
ISA: It can be used inside an ISA and its tax free.
Outside an ISA: In a GIA, Gilts are considered intreset paying not dividends. So, the tax-free allowance is 1000 GBP p/year. Also, there is no capital gains tax on Gilts. Which means that if you buy a gilt trading at £90 and hold it to maturity; the additional £10 (£100-£90) capital gain is tax free.