What are government bonds?
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
Term | Definition | Example |
Face value (par) | The amount the government repays at maturity, always £100 per gilt | Buy 100 gilts at £100 each; receive £10,000 at maturity |
Coupon | The annual interest rate, expressed as a percentage of face value, paid in two equal instalments | A 4% coupon pays £4 per year (£2 every six months) per gilt |
Maturity date | The date the gilt redeems and face value is returned | 4¾% Treasury Gilt 2035 matures on 7 March 2035 |
Clean price | The market price of the gilt excluding accrued interest | Traded at £98.50 in the secondary market |
Dirty price | The price including accrued interest since the last coupon payment | What you actually pay when buying between coupon dates |
Yield to maturity (YTM) | The total annualised return if the gilt is held to maturity, combining coupon income and capital gain/loss | A gilt bought at £95 with a 4% coupon maturing in 5 years has a higher YTM than its coupon rate |
Running yield | Annual coupon divided by current market price | 4% coupon / £98 price = 4.08% running yield |
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.
Types of UK government bond
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.
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.
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.
Wrapper | Coupon income tax | Capital gains tax | Best for |
Outside ISA/SIPP | Taxable at marginal rate (may use PSA) | Exempt (gilts only) | Lower-income investors within PSA threshold |
Stocks and shares ISA | Tax-free | Tax-free | Most retail investors; especially higher/additional rate taxpayers |
SIPP | Tax-free (grows within wrapper) | Tax-free within wrapper | Long-term retirement investors; withdrawals taxed as income |
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:
Bond | Issuer | Currency | 10-year yield (approx. June 2026) | Credit rating |
UK Gilt | UK Government (DMO) | GBP | 4.35% | Aa3 / AA (Moody's/S&P) |
US Treasury | US Government | USD | 4.50% | Aaa / AA+ (Moody's/S&P) |
German Bund | German Government | EUR | 2.65% | Aaa / AAA |
Japanese JGB | Japanese Government | JPY | 1.55% |
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
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
Capital gains tax exemption, which makes gilts uniquely efficient for investors with large taxable portfolios who have used their CGT allowance on other assets
ISA eligibility, allowing both coupon and capital gains to be sheltered permanently from tax
Portfolio diversification: gilts typically have low or negative correlation with equities over longer time horizons, reducing overall portfolio volatility
Capital preservation: if held to maturity, a gilt guarantees the return of face value, making them useful for investors with known future cash needs
Inflation hedging: index-linked gilts provide protection if inflation rises above expectations
Risks of investing in gilts and government bonds
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%
Long-dated gilts are particularly volatile: 30-year gilt yields have moved sharply in 2025-26
Inflation risk: conventional gilt real returns erode if inflation exceeds the coupon
Currency risk applies to non-sterling government bonds held by UK investors
Opportunity cost: if rates rise after you buy, you may be locked into a below-market yield unless you sell
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.
Government bond FAQs
A gilt is a bond issued by the UK government through the Debt Management Office. The name comes from the original gilt-edged certificates on which they were printed. When you buy a gilt, you lend money to the government and receive fixed interest payments twice yearly until the bond matures, at which point you receive back the face value of £100 per gilt. A full list of all conventional gilts in issue, with current prices and yields, is available on the DMO website.
The three main options are: investment platforms (most common, ISA-eligible, live secondary market prices); the DMO's Purchase and Sale Service (direct, no commission, but no ISA eligibility); and gilt ETFs (diversified, low cost, ISA-eligible). For most retail investors, an investment platform is the most practical route, combining ease of access with ISA eligibility.
The 10-year gilt yield is approximately 4.35% as of early June 2026, down from a multi-decade high of 5.02% reached on 29 April 2026. The 30-year gilt yields around 4.75-4.80%. The Bank of England Bank Rate is currently 4.00%. Live yield data is available from the Dividend Data gilt prices page.
Yes. Capital gains made on the disposal of gilts by individual investors are completely exempt from UK CGT under Section 115 of the Taxation of Chargeable Gains Act 1992 - HMRC. Coupon income is taxable at your marginal rate outside an ISA, but both income and gains are fully sheltered inside a stocks and shares ISA.
A gilt is a specific type of bond issued by the UK government. The word bond is a broader term covering debt securities issued by governments (including overseas governments), companies (corporate bonds), and supranational organisations. In the UK, 'government bond' and 'gilt' are used interchangeably. The differences between the characteristics of bonds and stocks are covered in detail in our dedicated comparison.
Yes, you can hold gilts within a Stocks and Shares ISA.
An index-linked gilt is a UK government bond whose coupon payments and principal are adjusted in line with the Retail Prices Index (RPI). This means the real value of your income and capital is protected if inflation rises. Index-linked gilts carry lower initial yields than conventional gilts but are more volatile in price. They are primarily used by pension funds with inflation-linked liabilities.
Gilts and government bonds have traditionally served as a counterbalance to equity risk, tending to rise in price when equities fall in a risk-off environment. The degree to which this relationship holds varies depending on the inflation and interest rate environment. In the current context of elevated but declining yields, gilts offer both an income return and portfolio diversification benefit. For investors starting out, a beginner's investing guide covers how to think about the balance between bonds, equities and other asset classes in a long-term portfolio.
