UK gilts are bonds issued by the British government that pay a fixed or inflation-linked interest rate twice a year and return the full face value on a set maturity date. The name comes from the gilded edges of the original paper certificates. With 10-year gilt yields sitting roughly between 4.3% and 4.7% in early 2026, they remain a core holding for income investors and pension funds. Default risk is very low because gilts are backed by the UK government’s taxing power, but market prices swing with interest rate expectations, and that price movement is what tends to surprise newer investors.
HM Treasury holds ultimate authority over government borrowing. Day-to-day issuance is run by the Debt Management Office (DMO), an executive agency of HM Treasury that conducts auctions and publishes data on outstanding sovereign debt.1Debt Management Office. About Gilts
The Types of Gilts You Can Buy
Conventional Gilts
Most of the gilt market is conventional gilts. The government promises a set cash coupon every six months until maturity, then returns the £100 face value per unit. Every payment is locked in at issuance, so you know exactly what you will receive and when.1Debt Management Office. About Gilts The predictability is the appeal. Inflation quietly eroding those fixed payments over time is the cost.
Index-Linked Gilts
Index-linked gilts protect against inflation by tying both the coupons and the principal repayment to the UK Retail Prices Index (RPI). The DMO adjusts cash flows using an index ratio that reflects cumulative inflation since the gilt was first issued.2DMO. How to Calculate Cash Flows on Index-Linked Gilts If inflation runs higher than expected, the payments grow. In exchange, the starting coupon is usually lower than a conventional gilt of the same maturity, because the inflation adjustment provides separate compensation.
Green Gilts
Green gilts fund environmentally focused spending, with proceeds ring-fenced for eligible categories including clean transportation, renewable energy, energy efficiency, pollution prevention, biodiversity, climate adaptation, and nuclear energy projects.3GOV.UK. UK Government Green Financing Framework 2025 As of the 2025–26 debt management report, the government had raised £47.9 billion through the green financing programme, with two green gilts in issue and a further £10 billion planned for 2025–26.4GOV.UK. Debt Management Report 2025-26 (Accessible) The credit backing is identical to any other gilt; the “green” label governs how the money is spent, not the repayment obligation.
One further category, strippable gilts, lets each individual coupon and the final principal payment trade separately as zero-coupon instruments.5Debt Management Office. Stripping Facilities Pension funds use strips to match specific future liabilities. Retail investors rarely deal in them directly.
How the Coupon, Price, and Maturity Fit Together
Every gilt has three defining features. The coupon is the annual interest rate applied to the face value, paid in two equal instalments six months apart. The nominal or par value is standardised at £100 per unit, and that is what the government repays at maturity. The maturity date is the fixed date on which the last coupon and the principal are returned.1Debt Management Office. About Gilts
These three details combine in the gilt’s name. Take “1½% Treasury Gilt 2047”: the coupon is 1.5% per year, so £1,000 nominal pays £7.50 every six months, and the gilt matures on 22 July 2047.1Debt Management Office. About Gilts The coupon never changes. The market price will drift above or below £100 depending on how that fixed rate compares with prevailing interest rates.
Two prices matter when you trade. The clean price shown on a trading screen excludes any interest that has built up since the last coupon date. The dirty price is what you actually pay at settlement, and it adds accrued interest on top of the clean price. Accrued interest compensates the seller for holding the gilt through part of the coupon period without receiving that coupon.6United Kingdom Debt Management Office. Formulae for Calculating Gilt Prices from Yields Buy roughly halfway between coupon dates and you pay about half a coupon’s worth of accrued interest, which you then recoup at the next full payment.
How to Buy Gilts
There are two practical routes for UK residents: the DMO’s own retail service, or the secondary market through a broker or investment platform.
The DMO Purchase and Sale Service
The DMO runs an execution-only Purchase and Sale Service through its appointed registrar, Computershare Investor Services.7Debt Management Office. DMO Gilt Purchase and Sale Service Information To use it you first join the Approved Group of Investors, which is open only to UK residents who pass the DMO’s identity and anti-money-laundering checks.8DMO. Approved Group Service
Once approved, you buy or sell by completing a Gilt Stock Dealing Form and submitting payment at the same time. You cannot name a price or set a maximum; the trade executes at whatever price prevails when it is processed.7Debt Management Office. DMO Gilt Purchase and Sale Service Information Commission is tiered: purchases up to £5,000 cost 0.7% of the settlement amount with a £12.50 minimum, and purchases above £5,000 cost £35 plus 0.375% of the amount over £5,000.9UK DMO. Retail Questions and Answers
The Secondary Market
You can also buy and sell gilts through a stockbroker or investment platform on the London Stock Exchange, much as you would trade shares. This route gives you live pricing and the option to use limit orders. Settlement currently follows a T+2 cycle, so you receive the gilts two business days after the trade.10GOV.UK. Policy Note – Mandating T+1 Settlement in the UK
Sheltering Gilts in an ISA or SIPP
UK residents can hold gilts inside an Individual Savings Account (ISA) or a Self-Invested Personal Pension (SIPP). Gilts held in an ISA generate no income tax and no capital gains tax at all. The annual ISA allowance is £20,000 for the 2026–27 tax year. If you plan to hold a meaningful gilt allocation for income, sheltering it inside an ISA makes a real difference to your after-tax return, particularly at higher tax bands.
How Gilts Are Taxed
The Capital Gains Exemption
This is the single most important tax feature of gilts. Gains on the disposal of gilt-edged securities are not chargeable gains. Section 115 of the Taxation of Chargeable Gains Act 1992 provides the exemption, covering both direct holdings and options or contracts to acquire gilts.11Legislation.gov.uk. Taxation of Chargeable Gains Act 1992 – Section 115 The Treasury periodically updates the list of qualifying securities by statutory instrument.12Legislation.gov.uk. The Taxation of Chargeable Gains (Gilt-edged Securities) Order 2025 The flip side: losses on gilt disposals cannot be set against other gains either.
Income Tax on Coupons
Coupon payments count as savings income and are taxed at your marginal rate. For the 2025–26 and 2026–27 tax years, that means 20% for basic-rate taxpayers, 40% for higher-rate, and 45% for additional-rate. From April 2027, savings income tax rates are scheduled to rise by two percentage points across all bands.13GOV.UK. Changes to Tax Rates for Property, Savings and Dividend Income
Gilt interest is paid gross, with no tax deducted at source. The Personal Savings Allowance lets basic-rate taxpayers earn up to £1,000 in savings interest tax-free, higher-rate taxpayers £500, and additional-rate taxpayers nothing. For small holdings the allowance may cover all your coupon income. Larger portfolios will usually benefit from an ISA wrapper, where the interest is completely untaxed.
What Can Go Wrong
Interest Rate Risk
Gilt prices move inversely with interest rate expectations, and this is where most of the volatility lives. A coupon fixed at 3% looks unattractive when market rates reach 4%, pushing the gilt’s price below par. The same 3% coupon looks generous when market rates fall to 2%, driving the price above par.1Debt Management Office. About Gilts The longer the maturity, the more sensitive the price. A 30-year gilt swings far more than a 2-year gilt for the same shift in yields. Hold to maturity and you can ignore the interim moves; you collect exactly what the coupon and redemption promise. Sell early and you may crystallise a loss if rates have risen since you bought.
Inflation Risk
Conventional gilts pay fixed nominal amounts, so sustained inflation eats into purchasing power. Lock in a 4.5% yield while inflation runs at 5% and your real return is negative. Index-linked gilts address this by adjusting payments to RPI, at the cost of a lower starting coupon and the complexity of the indexation lag.2DMO. How to Calculate Cash Flows on Index-Linked Gilts
Credit Risk
The UK government has never defaulted on its sterling debt in modern history. Moody’s affirmed the UK’s Aa3 rating with a stable outlook in November 2025, one notch below the top tier. Credit risk on gilts is not zero in theory, but it is as close to zero as sovereign debt gets in developed markets. For most gilt investors the real exposure is rates and inflation, not default.
Buying Gilts from the United States
The DMO’s Purchase and Sale Service is restricted to UK residents, so US-based investors cannot buy gilts directly from the government. The alternatives are individual gilts through an international brokerage with London Stock Exchange access, or a UK gilt ETF such as the iShares Core UK Gilts UCITS ETF (ticker: IGLT), which trades in London and provides broad gilt exposure without picking individual maturities.
Currency is the first thing to price in. Gilts are denominated in pounds sterling, so a US investor takes on GBP/USD exchange rate risk on top of the bond’s own price movements. If the pound weakens against the dollar between purchase and payment or sale, your dollar return shrinks. The pound dropped 7% against the dollar in a single 12-month stretch leading into mid-2025, which shows how currency moves can swamp coupon income on an otherwise “safe” government bond. Currency hedging through forward contracts or hedged ETFs is possible, and it adds cost.
On tax, US citizens and resident aliens must report worldwide income, including foreign bond interest, on their federal return.14Internal Revenue Service. Reporting Foreign Income and Filing a Tax Return When Living Abroad Gilt coupons are reported on Schedule B. Under the US-UK tax treaty, interest income from government bonds is generally taxed exclusively by the investor’s country of residence, so the UK should not withhold tax on gilt coupons paid to a US resident, and you report and pay through your US return.15Treasury.gov. Technical Explanation – US-UK Income Tax Convention If the total value of your foreign financial accounts exceeds $10,000 at any point during the year, you must also file an FBAR (FinCEN Form 114).