Gilts: UK government bonds

Gilts are bonds issued by the British government to fund public spending¹. When you buy a gilt, you are lending money to the UK government for a fixed period. In return, the government pays you a fixed amount of interest, called the coupon, at set dates, and hands back the original sum when the gilt matures. The name comes from "gilt-edged securities", a historical label for the safest bonds on the market, and gilts are still generally treated as among the lowest-risk investments available in the UK².

Since April 1998, the UK government's Debt Management Office has issued gilts on behalf of HM Treasury³. They sit at the heart of the UK financial system: pension funds held them as the main type of long-term investment within their debt securities, and the Bank of England has bought them in large quantities under quantitative easing, which it describes as creating new money electronically to buy gilts from private investors such as pension funds and insurance companies⁴. Private households have historically held only a small slice of them directly, around 2.3 per cent as of 2012, though direct holding by individuals has grown since³.

What gilts are: bonds issued by the UK government

A gilt is a promise from the UK government to pay a series of fixed interest payments and then repay a fixed sum on a set date. The government uses the money raised to fund public spending, and investors buy gilts for the combination of predictable income and very low risk of the government failing to pay¹.

Most gilts are conventional, meaning the coupon and the repayment amount are fixed in cash terms. As of April 2012, conventional gilts made up 64 per cent of UK government debt sources, with index-linked gilts, whose payments rise with inflation, making up 20 per cent³. Index-linked gilts adjust their payments in line with the Retail Prices Index (RPI), which matters because RPI is being reformed: in 2030, the final set of index-linked gilts with an RPI promise will mature, and the government has confirmed it will not offer compensation to holders of index-linked gilts for the watering down of the RPI measure⁸. Anyone holding index-linked gilts beyond that window is taking a risk on how inflation is measured, not just on inflation itself.

The government also issues green gilts, where the proceeds are directed towards a range of environmental projects⁹. These work like conventional gilts in payment terms; the difference is in what the money is used for, which matters to investors who want their lending to fund particular projects. The wider world of bonds and corporate bonds covers the other issuers, from companies to foreign governments.

Gilts are not the same as National Savings & Investments products, even though both are backed by the UK government. NS&I's Guaranteed Growth Bonds, for example, are UK government securities issued under the National Loans Act 1968 and the National Savings (No 2) Regulations 2015, but they are savings products with their own terms rather than tradable gilts¹⁰.

How a gilt works: a fixed coupon and a maturity date

Every gilt has three defining features: a face value, a coupon and a maturity date. By and large, the coupon (interest) payments are fixed⁶, which means the cash income does not change no matter what happens to interest rates or inflation afterwards. The maturity date is the day the government repays the face value and the gilt ceases to exist.

The coupon is generally paid twice a year rather than monthly or annually, so a direct gilt holder receives two income payments a year for each gilt they own⁶. The size of the coupon is set when the gilt is first issued, and it reflects the interest rates of the time. That is why the majority of new gilts coming to market have much higher coupons compared to those issued in recent years⁶: rates when they were issued were higher than during the low-rate years.

This fixed-coupon structure is what separates a gilt from a savings account. A savings account's interest rate can be changed by the provider, and the balance does not move. A gilt's coupon is fixed for its whole life, but its market price does move, sometimes a lot. Official guidance on ISA reform is explicit that corporate and government bonds, including UK gilts, are not cash-like assets¹¹, which matters for rules that treat cash and investments differently.

There are also securities called gilt strips, where no interest payments are made but all capital returns are taxed as income⁶. Strips are the coupon payments and the redemption payment separated out and sold as individual zero-coupon securities, and their different tax treatment is covered below.

Holding to maturity or selling early: how your return changes

A direct gilt holder has two ways out: hold to maturity, or sell early on the market. The two routes give quite different outcomes.

Held to maturity, a gilt's return is fixed and known in advance: the coupons, paid twice a year, plus the return of the lump sum at the end. When a bond you own matures, the lump sum that had previously been invested in the bond is then returned as cash into your investment portfolio⁶. That cash then sits in your account until you decide what to do with it, which is a point at which reinvestment risk arises: the gilt may have matured at a time when new gilts pay less than the old one did.

Sold early, the return depends on the market price on the day. If interest rates have fallen since you bought, the price is likely to be above what you paid; if they have risen, below. Selling early is therefore a decision to accept whatever the market gives rather than the known outcome at maturity.

If you hold your bonds via a fund, then you won't need to worry about maturity values. The fund manager will manage this element and reinvest the cash into other bonds⁶. A fund never "matures" in the way a single gilt does; it holds a rolling portfolio, and the manager replaces maturing bonds continuously. The trade-off is that a fund's price moves with the market permanently, whereas a direct gilt held to maturity has a known end point.

This distinction is the same one that separates an annuity from drawdown in pensions: after you swap your savings for an annuity, this money is no longer invested and so will no longer have the opportunity to grow¹³. A gilt held to maturity is similar in spirit, a fixed outcome in exchange for giving up upside, though unlike an annuity the capital does come back at the end.

Gilt prices move with market interest rates

The single most important thing to understand about gilts as investments, as opposed to savings, is that their market prices move, and they move mainly in response to interest rates. When new bonds pay more than an existing gilt's fixed coupon, the old gilt becomes less attractive and its price falls; when rates fall, the old gilt's fixed coupon looks better and its price rises. The further away the maturity date, the more sensitive the price is to a given change in rates.

The yield is the return the gilt offers at its current price, and it moves inversely to the price. Official statistics show how much the 10-year gilt yield has moved in recent years: it fell from 4.10% to 3.73% between 30 September and 31 December 2022¹⁴, then, years later, stood at 4.66% on 31 March 2025, fell to 4.51% on 30 June 2025, and rose to 4.76% on 30 September 2025⁷.

Those swings are not exotic events; they happened within single quarters. A gilt bought at the wrong moment and sold at the wrong moment can return less than its coupons, even though the government never missed a payment. The Bank of England's own quantitative easing programme shows the scale of official involvement in this market: QE is when the Bank creates new money electronically and uses it to buy gilts from private investors such as pension funds and insurance companies⁴, which itself affects gilt prices and yields.

For a reader trying to judge what a "normal" yield looks like, the figures above give a recent range of roughly 3.7% to 4.8% on the 10-year gilt across the periods measured⁷, but yields change continuously and no figure on this page is a promise of what a gilt will pay when you buy one.

How safe gilts are: very low default risk, not no risk

Safety with gilts comes in two parts, and only one of them is reassuring.

The first part is default risk: the risk that the issuer fails to pay. Here gilts sit at the top of the bond market. Corporate bonds have similar characteristics to gilts, however they carry higher risk of default, particularly bonds issued by companies with lower credit ratings⁶. Lending to the UK government is treated as lower risk than lending to any UK company, which is why gilts have historically been the benchmark against which other bonds are measured, and why long-term investors such as equity release providers favour them².

The second part is price risk, and it is where gilt holders actually lose money. As the previous section showed, gilt prices move with interest rates, and a holder who sells before maturity gets the market price, not what they paid. There is also inflation risk: a fixed coupon buys less each year if prices rise, and the government has confirmed it will not offer compensation to the holders of index-linked gilts for the watering down of the RPI measure used to calculate their payments⁸.

The general principle that lower risk comes with lower expected return applies. Investors accepting very low default risk should expect lower returns than investors taking equity risk, a trade-off covered in investment risk and your attitude to risk and in bonds vs equities. Gilts are also used to reduce overall portfolio risk through diversification and asset allocation, because their prices often move differently from shares.

One thing gilts are not is a savings account. Official guidance is explicit that corporate and government bonds, including UK gilts, are not cash-like assets¹¹, and a savings deposit, whether with a bank, building society or credit union, does not fall in value the way a gilt can. The comparison between the two is covered in investing vs saving in a bank.

Tax on gilts: coupons are taxed as income, gains are free of CGT

The tax treatment of gilts held directly is unusual and, for some investors, is the main attraction. It has two halves that work in opposite directions.

The first half: coupons paid by gilts are taxed as income⁶. They count towards your income for the tax year and are taxed at your marginal rate, like other savings and investment income. There is no special relief on the coupon.

The second half: investors who purchase gilts directly, rather than through a fund, do not have to pay capital gains tax on any increases in their capital value between purchase and sale or maturity⁶. This is a specific exemption for gilts, and it is what makes low-coupon gilts interesting for tax purposes. A gilt issued with a very low coupon trades at a deep discount to its face value, so much of its total return comes as a capital gain at maturity, which is free of CGT for a direct holder, rather than as coupon income, which is taxed. The higher the coupon, the more of the return arrives as taxable income instead. The dedicated page on gilt coupon tax covers this in detail.

For comparison, capital gains tax on shares is charged at 18% or 24%, depending on your income tax band¹⁵, and Capital Gains Tax is a tax on the profit when you sell something that's increased in value¹⁶. Losses on other assets can be offset against a CGT bill, and unused losses can be carried forward against future CGT bills¹⁷, though this is rarely relevant to direct gilt holdings since their gains are exempt.

The exemption does not extend everywhere:

• Gilt strips: no interest payments are made but all capital returns are taxed as income⁶, so the CGT-free route does not apply to strips.
• Funds: if you hold gilts through a fund, the income you receive from the fund is treated as savings income¹, and the direct-holding CGT exemption does not apply to you.
• Other assets: the exemption is specific to gilts. CGT can apply to personal possessions sold for £6,000 or more¹⁸, to property that is not your home¹⁹, and to shares outside wrappers¹⁵.

How you report and pay Capital Gains Tax depends on whether you sold a residential property in the UK¹⁹, and help with capital gains on your self-assessment tax return is available from HMRC¹⁶. The wider picture is on how investments are taxed.

Holding gilts in an ISA or SIPP

Gilts can be held inside tax wrappers, which changes the tax position again. Many platforms offer the ability to hold investments inside an ISA, SIPP or Junior ISA²⁰, and investment platforms allow you to put your investments inside one or more of these tax-efficient wrappers: SIPPs (self-invested personal pensions), ISAs and a general investment account¹⁷.

Inside an ISA or a pension, the coupon tax question disappears: if you hold shares inside an Isa or pension you won't need to pay capital gains tax when selling them¹⁷, and the same wrapper principle applies to gilts. Since direct gilt gains are already CGT-free, the main benefit of a wrapper for a direct gilt holder is sheltering the coupons from income tax, which matters most to higher-rate taxpayers holding higher-coupon gilts. For gilt funds, a wrapper removes both the income tax on distributions and any CGT on gains.

A SIPP is a pension, so money inside it is locked away until pension age under the normal pension rules. SIPPs are generally for more experienced investors who have larger sums to invest²⁰. The choice between wrappers is covered in ISA, pension or general account: where investments can be held, and investing for children through Junior ISAs and Junior SIPPs follows the same wrapper logic.

One caution: official guidance on ISA reform anti-circumvention rules distinguishes sharply between cash-like assets and investments, and corporate and government bonds, including UK gilts, are not cash-like assets¹¹. Wrapper rules and allowances can change, so check the current position before acting.

Buying gilts through an investment platform

Most private investors buy gilts through an investment platform. An investment platform, sometimes called a fund supermarket, allows investors to buy and hold a range of investments in one place online, and sometimes with a smartphone app¹⁷. Platforms are online services that allow you to buy, hold and sell investment trust shares²⁰, and the same dealing machinery handles gilts.

The practical route looks like this:

1. Open an account with a platform, choosing the wrapper: general investment account, ISA or SIPP¹⁷.
2. Search for the gilt by its name or ticker, which states the coupon and maturity year.
3. Place a buy order, paying the platform's dealing charge, covered in dealing charges for buying and selling investments.
4. Hold the gilt, receiving coupons as cash into the account, or reinvesting them.
5. Either sell at the market price at a time of your choosing, or wait for maturity, when the lump sum is returned as cash to your portfolio⁶.

The alternative to buying individual gilts is a gilt fund, where a manager holds a portfolio of gilts for you. The differences matter:

Platform costs eat into gilt returns more than into equity returns, because gilt returns are typically lower, so investment platform fees and charges and fund charges and the ongoing charges figure are worth reading before choosing. How platforms work generally is covered in how investment platforms work, and what happens if a platform fails in what happens if an investment platform or pension provider fails.

Gilts and other listed securities are traded on the London Stock Exchange: these are all stocks, shares, debentures and other securities listed on the Stock Exchange Daily Official List²¹, and UK investors will find most listed investments on the London Stock Exchange²². Short-dated government debt that pays no coupon at all, Treasury bills, is a separate product covered in Treasury bills: how they work and who backs them.

Where to get help

Free, impartial help with gilts and investing is available. MoneyHelper, the government-backed money guidance service, offers free information on savings and investments. For tax questions, HMRC's guidance on capital gains covers reporting and payment¹⁹.

If something goes wrong with a gilt purchase through a platform, the platform's complaints process comes first, and the Financial Ombudsman Service can review a complaint if the platform cannot resolve it. The Financial Services Compensation Scheme covers platform failure, not investment losses, a distinction explained in does FSCS cover poor investment performance?. If an investment was recommended rather than bought on an execution-only basis, mis-sold investments and bad investment advice sets out the position.

For the wider background, investing: a complete guide covers how investing works, and how investing works: risk, return and time explains the risk-return trade-off that gilts sit at the cautious end of.