Gilts, explained
UK government bonds, how they're taxed, and how a gilt held to maturity compares with a savings account after tax.
What is a gilt?
A gilt is a bond issued by the UK government through the Debt Management Office (DMO). A conventional gilt pays a fixed coupon (interest) twice a year on each £100 of nominal value and repays £100 at its maturity date. Gilts trade on the market, so their price moves – mainly with interest rates. If you sell before maturity you could get back less than you paid; if you hold to maturity you receive £100 per £100 nominal.
Why low-coupon gilts can be tax-efficient
- Capital gains on gilts are exempt from Capital Gains Tax for individuals.
- The coupon is taxable as savings income (it can use your Personal Savings Allowance and starting rate).
A low-coupon gilt trading below £100 delivers most of its return as a tax-free gain at maturity rather than as taxable interest. For a higher- or additional-rate taxpayer, that can mean a better after-tax return than a savings account paying a similar headline rate. The calculator below shows the effect. Inside an ISA or SIPP, the tax difference doesn't apply.
Example of a real low-coupon gilt in issue: 0 1/8% Treasury Gilt 2028 – 0.125% coupon, maturing 31 January 2028 (DMO data, close of business 9 October 2026). This is shown to illustrate the idea, not as a recommendation to buy.
Gilt vs savings after tax
How it works: bought today and held to maturity. You pay the clean price plus accrued interest (dirty price). The gross redemption yield (GRY) uses semi-annual compounding (the market convention). The net yield taxes each coupon at your chosen rate, leaves the gain to £100 untaxed (CGT-exempt), and is shown as an annual effective rate. The equivalent savings rate is the AER a savings account would need to pay to match it after tax: net ÷ (1 − tax rate). Simplifications: coupon dates are counted back from maturity, ex-dividend periods and dealing costs are ignored, and the Accrued Income Scheme (which can apply if your gilts' total nominal value is over £5,000) isn't modelled. The 2027/28 options use the higher savings rates legislated for that year. If you pay 0% on all coupons, the "equivalent" is simply the gross figure.
Sources (checked 12 October 2026): GOV.UK – Capital Gains Tax: what you don't pay it on (gilts); GOV.UK – Tax on savings interest; GOV.UK – Budget 2025 OOTLAR Annex A: rates and allowances (2026 to 2027); GOV.UK/HMRC – Changes to tax rates for property, savings and dividend income (27 Nov 2025); UK Debt Management Office – Gilts in Issue (report D1A); HMRC Savings and Investment Manual – Accrued Income Scheme.