We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Gilts – UK government bonds

What are gilts?

Gilts are debt securities issued by the UK government for investors to buy to support public spending commitments.

These bonds tend to pay regular interest, called coupon payments. The issuer – the government – then repays the initial lump sum when the bond matures at a specific date.

They’re called gilts, or gilt-edged securities, because the paper certificate for the debt securities, issued by the Debt Management Office on behalf of His Majesty's Treasury, had a gilt edge.

Generally, government bonds tend to be less risky than bonds issued by a company because the government is less likely to default on payments.

Some bonds issued by national governments might be more risky than others.

How do gilts work?

Gilts are normally issued at a price of 100p per unit, known as the par value.

They usually have a date when the par value will be fully repaid. This is given in the name of the gilt.

Gilts pay interest – this is given as a percentage of that 100p, which is known as a coupon. This is the amount of income you get each year.

If you bought one unit of a gilt issued at 100p per unit that paid a coupon of 5%, you’d get 5p every year.

If gilts are traded on the stock market, they can be bought and sold below or above the price they were issued at, and the amount of income paid is known as the yield. This isn’t the same as the coupon.

The coupon is the interest promised when the bond was issued, and the yield is the return an investor who has bought the bond after issue can expect to receive over the next 12 months. The coupon is a fixed amount, and the yield will change as the price of the bond changes.

Income yield = coupon ÷ price X 100

The perception of whether the gilt can be repaid moves the price, but it also depends on the interest rates central banks set.

When the base interest rates rises, the price of gilts has tended to fall. That’s because the interest on offer won’t look as attractive as when rates were lower.

If higher interest rates cause bond prices to fall, the yield increases – this is what you get as a percentage of the price you paid. That means the price and the yield of a bond have usually moved in opposite ways. As one rises, the other falls and vice versa.

Gilts and their pricing

When you’re buying a gilt, it’s worth noting the difference between what’s known as the ‘clean’ and ‘dirty’ price.

The clean price is the price of a bond not including any accrued interest. This is the price that’s normally quoted.

The ‘dirty price’ is the price of a bond that includes accrued interest between coupon payments.

If you buy a bond immediately after issue or the most recent coupon, the clean and dirty prices will be the same.

However, if you buy partway through a coupon period (they’re typically paid twice a year), you’ll need to account for adjustments that reflect income accrued to the bond. This means the actual price you pay will include accrued interest and the cost of the bond.

In practice, once you’ve bought the gilt, it could show as a ‘loss’ on your account – this is simply because the accrued interest wasn’t reflected in the value shown.

Tax and gilts

There are two types of return you could get when you invest in gilts. The income and any gains you might make when you sell.

Interest paid by a gilt is taxed as income.

Any capital gains, however, are tax free. If you sell at a capital loss, this can’t be used to offset other gains. You also don’t pay any stamp duty or stamp duty reserve tax when you buy a gilt.

If you hold gilts in an ISA or Self-Invested Personal Pension (SIPP), you won’t pay any UK income or capital gains tax on them at all.

You should remember that tax rules can change, and benefits depend on your individual circumstances.

All investments can fall as well as rise in value, so you could get back less than you invest.

Benefits and risks of investing in gilts


Diversification – they allow you to invest in a different type of investment that could mitigate risk and help balance your exposure to different asset types.

Lower risk – generally, gilts are a lower-risk investment as it’s unlikely the UK government will miss any repayments.

Regular income – gilts usually pay income twice a year.

Capital gains tax exemption - The exemption from capital gains tax extends to options and other contracts to buy or sell gilts.


Rising Interest Rates – when interest rates rise, any new gilts issued tend to come with higher coupons. This makes existing gilts less attractive often causing their price to fall. The opposite happens when interest rates are cut. Newer gilt issues generally pay less in interest, which can make existing gilts look more attractive.

Other types of Government bonds

While we’ve focused on UK government bonds, there are other governments that issue debt securities for investors to purchase.

The US offer their version, known as treasury bonds, which are launched at special auctions that only selected registered participants can take part in. They can then be bought on the secondary market in the same way as their UK counterparts, gilts.

Other countries offer bonds too, like Germany with their federal bonds, France and their treasury bonds or Spain with treasury securities. Countries that are seen to have riskier economies might carry more risk when investing in their bonds, which is important to think about before investing.

Our website offers information about investing and saving, but not personal advice. If you're not sure which investments are right for you, please request advice, for example from our financial advisers.

Related topics

Read more related glossary terms


A bond is a fixed-income investment where investors lend money to governments or companies for a set period of time in return for regular interest payments.

Learn more about Bonds


A financial derivative is a contract between parties that has a value based on an underlying asset. Find out more about derivatives.

Learn more about Derivatives


Shares represent part-ownership of a company. As a shareholder you own a ‘share’ of the business, and the monetary value attached to it, which can be sold to other investors.

Learn more about Shares