How to buy gilts and invest in bonds in the UK

What are government bonds?

A government bond is a debt security issued by a national government to raise money from investors. When you buy a government bond, you are lending money to the government in exchange for regular interest payments (known as the coupon) and the return of your capital when the bond matures. In the UK, government bonds are called gilts, a name derived from the original gilt-edged certificates on which they were printed. 

They are issued by the UK Debt Management Office (DMO) on behalf of HM Treasury. Compared to other fixed income options, stocks and bonds behave very differently: bonds offer predictable income and lower volatility, while stocks offer higher long-term growth potential with greater risk. This results in the classic 60:40 stocks to bonds portfolio in order to manage risk.

Gilts are considered among the safest investments available to UK investors because the UK government has never defaulted on its debt obligations, according to the DMO. The main risk is not default but interest rate risk: if rates rise after you buy a gilt, the price of your gilt falls, and vice versa. However, if you intend to simply hold the gilt until maturity, the tradeable value is arguably less relevant.

With 10-year gilt yields moving between 4% and 5% in 2025-26, gilts are now offering returns that compare favourably with cash savings for many investors, with the added advantages of capital gains tax exemption and ISA eligibility.

How do gilts work? Key terms explained

The relationship between price and yield is fundamental. When interest rates rise, gilt prices fall, pushing yields up. When rates fall, gilt prices rise, pushing yields down. This means investors who buy gilts and then need to sell before maturity can make a capital gain or a capital loss, depending on how interest rates have moved. Short-dated bonds are sometimes utilised in order to avoid this trap. For those new to fixed income investing, this is covered in more depth in our beginner's guide to investing.

Source: CNBC

Types of UK government bond

1. Conventional gilts
2. Index-linked gilts
3. Treasury bills
4. Green gilts

Conventional gilts

Conventional gilts pay a fixed coupon every six months and return face value at maturity. They are the most common type and what most retail investors buy. The coupon rate is fixed at issuance and does not change over the gilt's life. Current examples include the 4¾% Treasury Gilt 2035, issued by the DMO in September 2025.

Index-linked gilts 

Index-linked gilts adjust both the coupon and the principal in line with the Retail Prices Index (RPI). They offer lower initial yields than conventional gilts but provide protection if inflation rises above expectations. They are particularly popular with pension funds that have inflation-linked liabilities. Index-linked gilts are more complex to value and more volatile in price, so they are generally less suitable for straightforward income-seeking retail investors than conventional gilts. As part of a broader tax-efficient investment strategy, however, they can play a useful role for investors with specific inflation-hedging objectives

Treasury bills

Treasury bills (T-bills) are short-term government debt instruments that mature within a year, typically three or six months. Unlike gilts, they do not pay a coupon. Instead, they are sold at a discount to face value and redeemed at par. T-bills are primarily used by institutional investors and money market funds.

Green gilts

The UK government has also issued green gilts, where proceeds are earmarked for environmentally beneficial spending. There are currently two green gilts in issue: the 0⅞% Green Gilt 2033 and the 1½% Green Gilt 2053. By the end of 2024-25, the government had raised £47.9 billion under its Green Financing Programme through green gilts and NS&I Green Savings Bonds, according to the DMO Debt Management Report 2025-26

How to buy gilts and government bonds in the UK

There are three main routes for retail investors looking to buy UK gilts, each with different advantages. For a full comparison of the current gilt market, Dividend Data's gilt prices and yields page lists all conventional gilts currently in issue with live prices and yields.

1. Investment platforms (most common route)
2. The DMO Purchase and Sale Service (direct route)
3. Gilt ETFs (diversified route)

 Investment platforms (most common route)

The most accessible and flexible option for most retail investors. You can search for gilts by name or maturity date, see live secondary market prices, and buy and sell through your ISA, SIPP or general investment account. Settlement is T+1. The key advantage is the ability to hold gilts inside an ISA wrapper, sheltering all coupon income and any capital gains from tax permanently. Most major platforms including IG offer access to the gilt market.

The DMO Purchase and Sale Service (direct route)

The DMO's Purchase and Sale Service allows retail investors to buy and sell gilts directly from the DMO in the secondary market, administered by Computershare Investor Services. The minimum purchase is £100 and there is no commission. The main disadvantages are that purchases cannot be held in an ISA, you cannot specify the price at which your purchase is executed, and the service is less convenient than a platform. You must first become a member of the DMO's Approved Group of Investors.

Gilt ETFs (diversified route)

Rather than buying individual gilts, investors can access the gilt market through ETFs that hold a diversified portfolio of government bonds. The most widely used UK gilt ETFs include the iShares Core UK Gilts ETF (IGLT, 0.07% OCF) and the Vanguard UK Government Bond ETF (VGOV, 0.07% OCF), both of which can be held in an ISA or SIPP. Understanding how these products work and how they compare to direct gilt ownership is covered in our guide to ETPs and how to invest in them.

How are gilts taxed in the UK? (2026/27)

The tax treatment of gilts has an important nuance that can make them particularly attractive for higher-rate taxpayers, especially when bought at a discount to face value. There are two components to consider: capital gains and coupon income.

1. Capital gains tax: exempt
2. Coupon income: taxable (unless in an ISA or SIPP)
3. The low-coupon gilt strategy

Capital gains tax: exempt

Capital gains made on the disposal of gilts are completely exempt from UK capital gains tax for individual investors, under Section 115 of the Taxation of Chargeable Gains Act 1992. This applies whether you sell in the secondary market before maturity or hold to maturity. The exemption is uncapped and applies regardless of the size of the gain, as confirmed by HMRC's gilt-edged securities guidance. This is a significant advantage over shares and most other investments.

Coupon income: taxable (unless in an ISA or SIPP)

Coupon payments from gilts held outside a tax wrapper are subject to income tax at your marginal rate (20%, 40% or 45%). Some of this may be sheltered by the personal savings allowance (PSA): £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, and nothing for additional-rate taxpayers in 2026/27.

The low-coupon gilt strategy

Because capital gains on gilts are tax-free while coupon income is taxable, investors can optimise their after-tax return by choosing low-coupon gilts trading at a discount to face value. In this way, most of the return is delivered as a tax-free capital gain rather than taxable income. For a higher-rate taxpayer, this can produce a materially better after-tax return than a savings account paying a similar gross rate. The Gilt-Edge UK guide provides a worked example: a 40% taxpayer buying the Treasury 0.125% January 2028 gilt at £93.10 would receive an effectively tax-free yield of around 4.05%, versus a net 2.46% from a 4.1% savings account taxed at the higher rate.

Holding gilts in an ISA eliminates all tax considerations entirely. The DMO also provides specific guidance on gilt taxation on its retail investor taxation page.

UK gilts vs other government bonds

UK gilts are not the only government bonds available to investors. US Treasuries, German Bunds and Japanese government bonds (JGBs) are among the most widely traded, and all offer different risk, yield and currency characteristics:

For UK investors, buying non-sterling government bonds introduces currency risk: if the pound strengthens against the dollar after you buy US Treasuries, the sterling value of your investment falls. This can be mitigated through currency-hedged bond ETFs. For investors who want a single-fund approach to diversified fixed income, a global bond ETF may offer a simpler solution than managing individual positions in multiple government bond markets.

Why investors buy gilts: the role of bonds in a portfolio

Bonds play a different role in a portfolio to equities. Historically, gilts have tended to rise in price during recessions and equity market downturns, when investors move into perceived safe-haven assets, providing a natural counterbalance to equity risk. The degree to which this holds varies depending on the interest rate environment: in the high-inflation period of 2022-23, both gilts and equities fell together, disrupting the traditional relationship. For investors weighing how bonds and stocks interact, the current environment of elevated yields adds an income dimension that was largely absent during the low-rate years of 2009-2021.

The main reasons investors buy gilts in 2026 include

1. Income at current yields (4-5% range), which compares favourably with cash savings on an after-tax basis for higher-rate taxpayers using the low-coupon strategy
2. Capital gains tax exemption, which makes gilts uniquely efficient for investors with large taxable portfolios who have used their CGT allowance on other assets
3. ISA eligibility, allowing both coupon and capital gains to be sheltered permanently from tax
4. Portfolio diversification: gilts typically have low or negative correlation with equities over longer time horizons, reducing overall portfolio volatility
5. Capital preservation: if held to maturity, a gilt guarantees the return of face value, making them useful for investors with known future cash needs
6. Inflation hedging: index-linked gilts provide protection if inflation rises above expectations

Risks of investing in gilts and government bonds

1. Interest rate risk: gilt prices fall when interest rates rise. A 1% rise in rates can reduce a 10-year gilt's price by approximately 8-9%
2. Long-dated gilts are particularly volatile: 30-year gilt yields have moved sharply in 2025-26
3. Inflation risk: conventional gilt real returns erode if inflation exceeds the coupon
4. Currency risk applies to non-sterling government bonds held by UK investors
5. Opportunity cost: if rates rise after you buy, you may be locked into a below-market yield unless you sell
6. Gilt ETFs carry some tracking error and cannot guarantee the tax-free capital gain of direct gilt ownership. 

These risks are countered by a number of advantages. For example, gilts and bonds are considered amongst the safest sterling investments – the UK government has not defaulted to date. By being ISA and SIPP eligible, income and gains from investments are tax-free. Income can be more predictable than other investments, with twice yearly fixed coupon payments, regardless of market conditions. And, especially pertinent in today’s economy, index-linked gilts provide inflation protection via the RPI-linked coupon and principle.

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