Gilts Guide: UK Government Gilts Explained — How They Work, Types, Yields and How to Buy

A gilt is a bond issued by HM Treasury, denominated in sterling and listed on the London Stock Exchange. Buy one and you lend money to the UK government. In return, you receive a fixed or inflation-adjusted coupon twice a year and get your capital back at maturity.

The term "gilt-edged" dates to the original certificates, which had gilded edges — a visual marker of their security. The UK Debt Management Office (DMO) manages the gilt market, issuing new gilts via auction and running the Purchase and Sale Service for retail investors. Over £2 trillion of gilts are currently outstanding.

Gilts are quoted per £100 face value and trade in units as small as a penny. They carry an ex-dividend period of 7 business days before each coupon date — buy within that window and the seller keeps the next coupon. This is a detail that catches out first-time buyers, so check the ex-dividend dates on the DMO's gilt reference pages before placing a trade.

Why should you care beyond portfolio allocation? Gilt yields are the benchmark against which almost all UK borrowing is priced. Your mortgage rate, your employer's corporate bond costs, your pension fund's discount rate — all derive from gilt yields. When the 10-year yield moves 50 basis points in a single month, as it did in March 2026, the ripple effects reach every corner of UK finance. Our explainer on how gilt yields affect your mortgage and savings traces these transmission mechanisms in detail.

Pension funds, insurance companies, and overseas central banks hold the majority of outstanding gilts. But retail investor interest has surged since yields broke above 4% in late 2022 — and the latest spike towards 5% has intensified that demand. Platforms like Hargreaves Lansdown report record gilt trading volumes from individual investors.

Two types of gilt exist. Choosing between them depends on whether you fear interest rate risk more than inflation risk.

Conventional gilts pay a fixed coupon every six months and return £100 at maturity. Hold £10,000 nominal of a 4% coupon gilt and you receive £200 every six months (£400/year) plus your £10,000 back at maturity. The coupon never changes — set at auction and locked for life. That certainty is the appeal. The risk is that inflation erodes the real value of those fixed payments.

Look at real prices from Hargreaves Lansdown's gilt listings to see the range available. The Treasury 0.375% October 2026 trades at £98.01 — a short-dated low-coupon gilt where almost all your return comes as a tax-free capital gain. The Treasury 4.75% December 2030 trades at £101.37 — a higher coupon above par, where your return is heavily weighted towards taxable income. The choice between them is a tax decision as much as an investment one.

Index-linked gilts protect against inflation erosion. Both coupon and principal adjust with the UK Retail Prices Index (RPI), with a lag. The UK pioneered these in 1981. If RPI rises 5% over a year, your payments increase by roughly 5% in nominal terms.

The catch: RPI can fall, shrinking your payments in a deflationary environment. And the index used is RPI, not the Bank of England's CPI target — RPI typically runs 0.5–1 percentage point higher than CPI due to its formula methodology, which works in the investor's favour but makes direct comparison with CPI-linked products awkward.

Which suits you? If you need predictable cash flows — perhaps funding known expenses in retirement alongside a pension annuity — conventional gilts deliver exactly that. If you are saving for a goal 10+ years away and worry about persistent inflation hollowing out your returns, index-linked gilts provide a built-in hedge. Many investors hold both. For a broader view of where gilts sit within fixed-income investing, our bonds guide covers corporate bonds and bond funds alongside gilts.

The yield is the annual return you earn by buying at today's price and holding to maturity. It moves inversely to the price: when gilt prices rise, yields fall; when prices fall, yields rise.

The maths is straightforward. Buy a 3.25% coupon gilt at £100 and your yield is 3.25%. Buy the same gilt at £91.55 — the actual price of the Treasury 3.25% January 2033 — and you receive the same £3.25 coupon plus an £8.45 tax-free capital gain at maturity, pushing your yield-to-maturity to roughly 4.7%. Buy at £110 and a capital loss drags your yield below 2%.

That March 2026 spike tells a stark story. The Bank of England base rate sits at 3.75%, unchanged since December 2025 — yet the 10-year yield has surged nearly 50 basis points higher in a single month. The spread between the base rate and the 10-year yield has blown out to 117 basis points, up from 68bp in February.

Three forces are driving this:

1. The Iran conflict and energy shock. Oil price surges feed directly into UK inflation expectations. Markets now fear the Bank of England will need to raise rates rather than cut them — a complete reversal from the two cuts priced in at the start of 2026. The BBC reported that the UK faces the biggest hit to growth from the Iran war out of major economies. Higher expected rates mean higher gilt yields.

2. Government borrowing. The UK's fiscal position requires continued heavy gilt issuance. More supply pushes prices down and yields up. The Spring Statement confirmed spending commitments that markets priced as inflationary. The 30-year gilt yield reached 5.45% on 25 March, reflecting deep scepticism about long-term fiscal sustainability.

3. Global bond market contagion. US Treasuries, German Bunds, and Japanese Government Bonds have all sold off. UK gilts, as a mid-size sovereign market, are caught in the global repricing.

The widening gap between the base rate and long-term yields reflects genuine uncertainty about whether the Bank of England's next move is up or down. For gilt investors, this creates both risk and opportunity. For a candid look at the downside, see our piece on why 5% gilt yields can still erode your capital. For the bull case, read why gilts at 5% beat your savings account.

Gilts have a tax structure that, once understood, changes how you think about yield comparisons.

Capital gains tax: exempt. Gilts are completely exempt from capital gains tax for individual investors. Buy at £85, receive £100 at maturity — that £15 gain is tax-free. No annual exemption needed, no reporting required, no cap on the amount. This is not a loophole; it is a deliberate design feature that has existed for decades.

Income tax: applies to coupons. Coupon payments are taxed at your marginal rate. For the 2025/26 tax year: 20% for basic-rate taxpayers (taxable income up to £37,700 above the £12,570 personal allowance), 40% for higher-rate taxpayers (up to £125,140), and 45% for additional-rate taxpayers. Coupons are paid gross — you declare on your self-assessment return.

The below-par strategy — with real numbers. Take the Treasury 0.125% January 2028, currently trading at £92.74 on Hargreaves Lansdown. Buy £10,000 nominal and you pay £9,274. You receive 12.5p per £100 nominal annually (practically nothing in income tax) plus £726 in tax-free capital gains at maturity. Your effective yield is approximately 4.4%, almost entirely tax-free.

Compare that with a 4.4% savings account for a 40% taxpayer. After tax, the savings account delivers 2.64%. The gilt delivers close to the full 4.4%. That is a 67% improvement in take-home return — and the gilt carries a government guarantee.

ISA and SIPP wrappers. You can hold gilts in a Stocks and Shares ISA or a SIPP, sheltering coupon income from tax entirely. Since CGT is already exempt, the wrapper's main benefit is income tax protection on coupons. A higher-rate taxpayer receiving £1,000 in annual gilt coupons saves £400/year by holding in an ISA. With just days until the April 5 deadline, our ISA guide covers using your £20,000 allowance — and for those weighing cash vs stocks ISAs, our cash ISA rates comparison covers the alternatives.

Inheritance tax. Gilts form part of your estate — no special treatment. Standard IHT rules at 40% above the £325,000 nil-rate band.

The strategic takeaway: higher-rate and additional-rate taxpayers should compare gilts against savings accounts on an after-tax basis, not gross. The numbers almost always favour gilts for below-par issues. Our tax hub and savings hub provide broader context.

Four routes exist, each with different costs and trade-offs.

1. Investment platforms (most popular). Buy gilts on the secondary market through Hargreaves Lansdown, AJ Bell, interactive investor, or Vanguard. Dealing fees run £5–£12 per trade; most charge nothing to hold gilts. You can buy within an ISA or SIPP. This is the simplest route for most investors — and right now Hargreaves Lansdown lists over 70 gilts available for online dealing.

2. DMO Purchase and Sale Service. The Debt Management Office runs a direct purchase service administered by Computershare. Minimum £100 nominal. Gilts are held on the government register rather than in a nominee account. Slower to execute but avoids platform fees entirely. Neither the DMO nor Computershare provides advice.

3. Gilt funds and ETFs. The iShares Core UK Gilts UCITS ETF (IGLT) and Vanguard UK Government Bond Index Fund hold diversified portfolios across maturities. Ongoing charges run 0.07–0.15% annually. The trade-off: you lose the certainty of a known maturity date and redemption price. In a rising-yield environment like March 2026, gilt fund NAVs have fallen sharply. Our bonds guide and how to buy bonds paying 5% cover these options.

4. NS&I. National Savings & Investments products (Premium Bonds, savings certificates) are government-backed but are not gilts. They offer a different risk-return profile — no price volatility, but lower expected returns and no capital gains tax advantage.

What to buy right now? With the 10-year yield at 4.92% and rate expectations in flux, here is a practical framework based on your situation:

• Need capital back within 2 years: Treasury 0.375% October 2026 at £98.01 or Treasury 1.5% July 2026 at £99.26. Minimal price risk, returns mostly via tax-free capital gain.
• 3-5 year horizon, holding to maturity: Treasury 4% October 2031 at £97.22 or Treasury 4.125% March 2031 at £98.19. Attractive yields with limited duration risk.
• Long-term income seekers: Treasury 4.75% December 2038 at £95.89. Higher yield but more price sensitivity to rate movements.
• Maximum tax efficiency (higher-rate taxpayers): Treasury 0.125% January 2028 at £92.74. Almost all return delivered as tax-free capital gain.

For live yields and links to our full range of gilt analysis, visit the gilts hub.

Important: This article is for informational purposes only and does not constitute regulated financial advice. If you are unsure whether gilts are appropriate for your circumstances, consult a qualified independent financial adviser regulated by the FCA.