A UK gilt is a government bond issued by HM Treasury via the Debt Management Office (DMO). Each gilt has a coupon (e.g. 0.25%, 4%, 6%), a maturity date, and a £100 nominal redemption value. Gilts trade on the secondary market via brokers. Critical tax fact for UK retail: gilts are CGT-exempt — capital gains on gilt sales aren't taxable. Coupons are taxed as income (above the Personal Savings Allowance), but the capital appreciation as a low-coupon gilt trades up toward £100 at maturity is tax-free. This makes short-dated low-coupon gilts (e.g. TR25, TG26, TN28) more tax-efficient than cash deposits for higher-rate taxpayers.
What a gilt actually is
A gilt is a contract between you (the buyer) and HM Treasury (the issuer) that says:
- You lend HM Treasury a fixed amount (the nominal value, conventionally £100 per unit).
- HM Treasury pays you a fixed coupon at fixed dates (twice a year, on the 7th of two specified months).
- On the maturity date, HM Treasury returns your £100 per unit.
The "credit risk" is essentially zero — the UK government has never defaulted on sterling-denominated debt. The risk that matters for gilt investors is interest rate risk (gilt prices move inversely to yields, see the yields page) and opportunity cost (locking in a yield now means missing out if rates rise).
How gilts are named
Gilt names follow the format: [Coupon%] [Issue type] [Maturity year]. Examples:
- Treasury 0¼% 2025 — pays a 0.25% coupon, matures in 2025. Often abbreviated "TR25" or "T25."
- Treasury 4% 2025 — pays 4%, matures 2025. "TN25."
- Treasury 1¾% 2057 — long-dated, low coupon, 2057 maturity.
- UK Gilt 0.125% 2026 — issued during 2020 ultra-low-yield period.
Each gilt also has an ISIN code (e.g. GB00BFX0ZL78) and a SEDOL. When you buy via a broker, you'll often see the ISIN — it's the unique identifier that distinguishes (say) the 2025 4% gilt from the 2025 0.25% gilt.
The coupon mechanics
Each gilt pays its coupon twice a year on specific dates. For example, Treasury 0.25% 2025 pays on 31 January and 31 July. If you hold £10,000 nominal of this gilt:
- Annual coupon: £10,000 × 0.25% = £25/year.
- Paid in two instalments: £12.50 on 31 January and £12.50 on 31 July.
- Coupon is fixed for the life of the gilt — it doesn't change with interest rates.
The coupon is paid GROSS (no tax withheld), but it's taxable as savings income — see the tax section below.
The price-yield relationship
Gilts trade on the secondary market at a price that adjusts so the yield-to-maturity matches the current market rate for the equivalent maturity.
| Gilt | Coupon | Maturity | Current price (illustrative) | Yield to maturity |
|---|---|---|---|---|
| TR25 (Treasury 0¼% 2025) | 0.25% | 31 Jan 2025 | £98.85 | ~4.50% |
| TN26 (Treasury 4% 2026) | 4.00% | 22 Mar 2026 | £99.55 | ~4.55% |
| TG27 (Treasury 0¼% 2027) | 0.25% | 31 Jan 2027 | ~£93.50 | ~4.30% |
| TM30 (Treasury 4% 2030) | 4.00% | 22 Oct 2030 | ~£98.20 | ~4.35% |
| TS50 (Treasury 1½% 2050) | 1.50% | 22 Jul 2050 | ~£52.80 | ~4.10% |
Notice how a low-coupon gilt trades at a discount (e.g. TG27 at £93.50) while a high-coupon gilt trades near par (TN26 at £99.55). At maturity, both pay back the £100 nominal — so the low-coupon gilt holder picks up a tax-free capital gain of £6.50 per £100 of nominal.
The tax position — why this matters
This is the killer feature of UK gilts for tax-aware retail investors:
- Capital gains on gilts are CGT-exempt. Under section 115 of the Taxation of Chargeable Gains Act 1992, gilt-edged securities and certain other specified securities are exempt from CGT.
- Coupons are taxed as savings income. Above your Personal Savings Allowance (£1,000 basic rate, £500 higher rate, £0 additional rate in 2026/27), coupons are taxed at your marginal income tax rate.
The implication: a low-coupon short-dated gilt generates most of its yield as tax-free capital gain rather than as taxable income. For a higher-rate taxpayer with no PSA remaining, this can be hugely valuable.
Worked example — TR25 (low-coupon) vs Cash ISA (higher-rate taxpayer)
£50,000 invested for ~9 months: TR25 vs best-rate Cash ISA equivalent
| TR25 purchase: 100,000 × £98.85 = £98,850; round down to £50,000 = ~50,581 nominal | £50,000 invested |
| Coupon (already used PSA elsewhere, taxed at 40%): 0.25% × £50,581 = £126.45 | £75.87 after tax |
| Capital gain at maturity: (£100 − £98.85) × 505.81 = £582.18 (TAX-FREE) | £582.18 net |
| TR25 9-month net return | ~£658.05 (~1.32%) |
| Best Cash ISA 9-month at 4.40% AER (£50k cap if outside Cash ISA = taxable) | |
| Cash ISA: 4.40% × 0.75 (9/12) × £50k = £1,650 tax-free | £1,650 |
| BUT: ISA allowance £20k/yr limit means £30k must be outside ISA | |
| Outside-ISA savings: £30k × 4.40% × 0.75 × 60% net (after 40% tax) = £594 | £594 |
| £20k inside Cash ISA tax-free: £20k × 4.40% × 0.75 = £660 | £660 |
| Mixed Cash ISA approach: 9-month net return | £1,254 (~2.51%) |
Cash ISA wins this comparison in absolute terms at current rates because rates have risen. BUT the moment cash rates fall below ~4%, the calculus shifts — and short-dated gilts become competitive again. Also: for amounts above £85k Cash ISA FSCS protection, gilts have UK-government risk (effectively zero) while bank deposits above £85k have bank-failure risk.
How retail investors buy gilts
Three main routes for UK retail:
- Via a broker (Interactive Brokers, Hargreaves Lansdown, AJ Bell, Interactive Investor): most retail-friendly. Dealing fee typically £5-£12 per trade. Available in ISA, SIPP, and GIA wrappers. See the direct vs ETF comparison.
- Via the DMO Purchase Service: direct from HM Treasury. Available only for "Approved Group of Investors" (registered nominee accounts). Less common for retail now.
- Via gilt ETFs (VGOV, GLTL, IGLN): diversified gilt exposure without picking individual issues. Higher OCF (0.07-0.20%) but liquid and simple.
Index-linked gilts — the inflation protection variant
Beside conventional gilts, the DMO issues index-linked gilts ("linkers") whose principal and coupons increase with UK Retail Prices Index (RPI). Currently being transitioned to CPI from 2030, the linkers offer real-return protection — useful for long-horizon investors concerned about inflation.
Linker mechanics are more complex (delayed indexation, RPI-to-CPI transition). For most retail purposes, conventional gilts are simpler and the inflation hedge isn't usually material for short to medium horizons.
Common gilt mistakes UK retail make
- Chasing high-coupon gilts. A 6% coupon gilt looks attractive but trades at a premium to £100, so the yield-to-maturity is similar to low-coupon equivalents — and the higher coupon means more taxable income.
- Ignoring duration. A long-dated gilt has dramatic interest-rate sensitivity. Buying a 2050 gilt in 2020 (when rates were 1%) and seeing rates rise to 4.5% caused 40-50% price losses.
- Mixing gilts with credit bonds. "Bond ETFs" usually include corporate bonds with credit risk. Pure gilt exposure means individual gilts or gilt-only ETFs.
- Buying inside an ISA when outside-ISA tax savings would dominate. Low-coupon gilts in a GIA can outperform Cash ISA after-tax — see the worked example above.
Sources and methodology
Gilt issuance and characteristics from the Debt Management Office (dmo.gov.uk). Tax position: section 115 of the Taxation of Chargeable Gains Act 1992. Price data illustrative as of May 2026 — actual current prices change daily. For complex portfolio decisions involving gilts, see the tax adviser editorial recommendation. The methodology page documents sources.
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