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. TG27, T28, TG29) 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 gilt's two fixed coupon dates).
- 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% 2027 — pays a 0.25% coupon, matures 31 January 2027. Often abbreviated "TG27."
- Treasury 4% 2030 — pays 4%, matures 2030. "TM30."
- Treasury 1¾% 2057 — long-dated, low coupon, 2057 maturity.
- Treasury 0⅛% 2028 — ultra-low coupon from the 2020-21 low-yield era. "T28."
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 2030 4% gilt from the 2027 0.25% gilt.
The coupon mechanics
Each gilt pays its coupon twice a year on specific dates. For example, Treasury 0¼% 2027 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 |
|---|---|---|---|---|
| TG27 (Treasury 0¼% 2027) | 0.25% | 31 Jan 2027 | ~£98.00 | ~4.10% |
| TM30 (Treasury 4% 2030) | 4.00% | 22 Oct 2030 | ~£99.60 | ~4.15% |
| TS50 (Treasury 1½% 2050) | 1.50% | 22 Jul 2050 | ~£55.50 | ~4.60% |
Notice how a low-coupon gilt trades at a discount (e.g. TG27 at ~£98.00) while a higher-coupon gilt trades near par (TM30 at ~£99.60). At maturity, both pay back the £100 nominal — so the low-coupon gilt holder picks up a tax-free capital gain of £2.00 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 — TG27 (low-coupon) vs Cash ISA (higher-rate taxpayer)
£50,000 invested for ~6 months: TG27 vs best-rate Cash ISA equivalent
| TG27 purchase at ~£98.00 per £100 nominal: £50,000 ÷ £98.00 × £100 = ~£51,020 nominal | £50,000 invested |
| Coupon (one payment at maturity, 31 Jan 2027; PSA already used, taxed at 40%): 0.125% × £51,020 = £63.78 | £38.27 after tax |
| Capital gain at maturity: (£100 − £98.00) × 510.2 = £1,020 (TAX-FREE) | £1,020 net |
| TG27 ~6-month net return | ~£1,058 (~2.1%) |
| Best Cash ISA 6-month at 4.00% AER (interest outside an ISA = taxable) | |
| If the whole £50k fitted inside a Cash ISA: 4.00% × 0.5 (6/12) × £50k = £1,000 tax-free — but it can't | |
| BUT: ISA allowance £20k/yr limit means £30k must be outside ISA | |
| Outside-ISA savings: £30k × 4.00% × 0.5 × 60% net (after 40% tax) = £360 | £360 |
| £20k inside Cash ISA tax-free: £20k × 4.00% × 0.5 = £400 | £400 |
| Mixed Cash ISA approach: 6-month net return | £760 (~1.52%) |
The gilt wins this comparison for a higher-rate taxpayer whose ISA allowance is already committed: ~£1,058 vs £760, because nearly all of the gilt's return arrives as CGT-exempt pull-to-par rather than 40%-taxed interest. If the whole £50,000 could sit inside a Cash ISA, cash at 4% would win — but the £20k/yr allowance caps that. Also: for amounts above the £120k FSCS deposit limit, gilts have UK-government risk (effectively zero) while bank deposits above £120k 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 July 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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