For most UK retail investors in 2026/27: buy individual gilts if you have £20,000+ to commit, hold-to-maturity, and want to capture the CGT-exempt capital gain on low-coupon issues. Use a gilt ETF (VGOV, GLTL, IGLN) if you want diversification, regular contributions, or are inside an ISA/SIPP where the CGT exemption doesn't matter. The decision hinges on three factors: investment size, time horizon, and wrapper choice.
The decision matrix
| Factor | Individual gilts | Gilt ETF |
|---|---|---|
| Minimum practical amount | ~£10,000 (broker fees too high below this) | ~£100 (fractional possible) |
| Dealing costs | £5-£12 per trade (one-off) | £0-£12 per trade + 0.07-0.20% OCF/year |
| CGT exemption on capital gains | Yes — gilts are CGT-exempt | No — ETF gains are CGT-taxable in GIA |
| Coupon tax | Taxable as savings income | Distribution taxable; ERI if accumulating |
| Diversification | One issuer (HMT), but specific duration | Across many gilts of different maturities |
| Liquidity | Liquid in normal markets; can be tricky in stress | Highly liquid |
| Hold-to-maturity option | Yes — receive £100 nominal back | No — fund has rolling maturity |
| Best for | Large amounts, tax-aware, specific duration | Smaller amounts, diversification, simplicity |
The tax case for individual gilts
The killer feature: capital gains on gilts are CGT-exempt (Section 115, Taxation of Chargeable Gains Act 1992).
For a higher-rate taxpayer in a GIA:
- Low-coupon gilt (e.g. TG27, 0.25% coupon at £93.50): yield is roughly 0.25% coupon + 7% capital gain over the remaining maturity.
- Coupon is taxed at marginal rate (40% above PSA). Capital gain is tax-free.
- Net yield to a higher-rate taxpayer is much higher than the equivalent Cash ISA after-tax (because the bulk of the return is via the tax-free capital gain).
Gilt ETFs don't get this benefit. ETF distributions are taxable as income, and ETF disposals (selling shares of the ETF) are taxable as CGT in a GIA. The CGT exemption on individual gilts is structurally lost in the ETF wrapper.
The ETF case for diversification + simplicity
Why gilt ETFs still win for most retail:
- Diversification across maturities. A gilt ETF holds dozens of gilts across the curve. You get exposure to the whole UK government bond market in one trade.
- No reinvestment problem. When a gilt matures, you have to manually reinvest the proceeds. ETFs handle this automatically.
- Smaller minimums. A £200/month direct debit into a gilt ETF works. £200/month into individual gilts doesn't (broker fees eat too much).
- Liquidity. Gilt ETFs trade like any other ETF on the LSE — instant, tight spreads. Individual gilts can be illiquid for specific issues, especially in market stress.
- Wrapper neutrality. Inside an ISA or SIPP, the CGT exemption on individual gilts doesn't matter (the wrapper is tax-free anyway). ETF is simpler.
Major UK gilt ETFs
| Ticker | Name | Maturity focus | OCF |
|---|---|---|---|
| VGOV | Vanguard U.K. Gilt UCITS ETF | Broad UK gilts (all maturities) | 0.07% |
| GLTL | SPDR Bloomberg UK Gilt UCITS ETF | Broad UK gilts | 0.07% |
| IGLT | iShares Core UK Gilts UCITS ETF | Broad UK gilts | 0.07% |
| IGLS | iShares UK Gilts 0-5yr UCITS ETF | Short-dated only | 0.07% |
| IGLT | iShares £ Index-Linked Gilts UCITS ETF | Index-linked only | 0.10% |
For most UK retail investors wanting "ballast" bond exposure: VGOV or GLTL is the standard choice — broad UK gilts with very low OCF.
Worked example — £30,000 gilt ladder vs VGOV
UK higher-rate taxpayer, £30,000 to deploy, 3-year horizon
Option A: Direct gilt ladder
| £10k TR25 (matures 31 Jan 2025): YTM 4.50%, mostly capital gain (tax-free) | ~£450 first-year net |
| £10k TG27 (matures 31 Jan 2027): YTM 4.30%, mostly capital gain (tax-free) | ~£430 per year net |
| £10k TM30 (matures 22 Oct 2030): YTM 4.30%, mix of coupon + small gain | ~£330 per year net (coupon-heavy, taxed) |
| Broker dealing fees: 3 × £10 = £30 (one-off) | −£30 |
| 3-year net return on £30k | ~£3,500 (~11.7%) |
Option B: VGOV (Vanguard UK Gilt ETF)
| £30k VGOV at 4.30% yield-to-maturity, 7-year duration | |
| Distribution yield ~3.5% taxable: 3.5% × £30k × 60% (after-40%-tax) × 3 years | ~£1,890 |
| Capital gain depends on rate movements (uncertain) | −£900 to +£3,000 |
| OCF drag: 0.07% × £30k × 3 = ~£63 | −£63 |
| If sold above £3k CGT allowance, 24% CGT on capital gain | |
| 3-year net return (assuming flat rates) on £30k | ~£1,800 (~6%) |
Direct gilt ladder wins for higher-rate taxpayer in GIA by ~£1,700 over 3 years on £30k — purely from the tax efficiency of the CGT exemption on capital gains. Inside an ISA, the two would be much closer (tax neutrality).
How to actually buy individual gilts (practical workflow)
- Choose your broker. Hargreaves Lansdown, AJ Bell, Interactive Investor all offer individual gilts. Interactive Brokers also offers them with lowest fees.
- Find the gilt you want. Search by ISIN or name. The DMO site (dmo.gov.uk) lists all current gilts.
- Place the trade. Gilts are bought in £ nominal amounts. £10,000 of TR25 costs the clean price × 100 × £10,000 ÷ £100 nominal + accrued interest.
- Settle and hold. Standard settlement is T+2. Coupons get paid into your broker account automatically.
- Reinvest at maturity. When a gilt matures, the £100 nominal lands in your account. Buy the next gilt in your ladder.
Common direct-gilt mistakes
- Buying high-coupon gilts thinking they're "better." The headline 6% coupon attracts attention but the gilt trades at a premium — YTM is similar to low-coupon equivalents, with more taxable coupon income.
- Going too long on duration. Duration 20+ years is extreme rate sensitivity. A 1% yield move = ~20% price move. Don't reach for long-dated yield without understanding the risk.
- Buying inside an ISA/SIPP without understanding the wrapper neutralises the CGT advantage. Inside tax-free wrappers, ETF is usually simpler and cheaper.
- Forgetting accrued interest. The dirty price is what you pay. Plan cash accordingly.
Sources and methodology
Tax position: section 115 of the Taxation of Chargeable Gains Act 1992. Gilt issuance from DMO. ETF fee data from issuer pages as of May 2026. The ETF Data Methodology documents data sources. The methodology page documents the broader review process.
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