Gilts and Bonds Explained: UK Guide

By Tom Ashby, Editor · Updated 11 October 2026

5 min read · Facts checked against official sources on 11 October 2026

In short

A bond is a loan to a government or company that pays interest (the coupon) and repays a set amount at the end.
Gilts are UK government bonds. Corporate bonds carry more risk, depending on the company issuing them.
Bond prices move opposite to yields, so they can fall when interest rates rise, as gilts did sharply in 2022.
Gains on gilts and qualifying sterling corporate bonds are free of Capital Gains Tax, but the interest is taxable outside an ISA.
You can hold gilts and bonds in a stocks and shares ISA, and they don't count as cash-like under the 2027 rules.

Nominal value gilt prices are quoted against: £100
When conventional gilts pay their coupon: Twice a year
Capital Gains Tax on gilts held directly: 0%
FSCS limit if your platform fails: £85,000

On this page

What is a gilt?
What are corporate bonds?
How do bond prices and yields work?
How are gilts and bonds taxed?
How do you buy gilts and bonds?
Can you hold gilts and bonds in an ISA?
What are the risks of gilts and bonds?
Related guides
Sources

A bond is a loan. When you buy one, you lend money to a government or a company, which pays you interest, called the coupon, and repays a fixed amount, the nominal value, on a set date. Gilts are bonds issued by the UK government. Bonds usually move less than shares, which is why many investors hold some, but they can still fall in value. This guide explains how gilts and bonds work, how they’re taxed and the risks.

What is a gilt?

The UK Debt Management Office (DMO), which issues gilts for HM Treasury, defines a gilt as a UK government liability in sterling. Gilts are listed on the London Stock Exchange and come in two main types:

Conventional gilts pay a fixed coupon in two equal payments a year, six months apart, and repay their nominal value when they mature. Prices are quoted per £100 of nominal value.
Index-linked gilts adjust both the coupon and the repayment in line with the Retail Prices Index (RPI), with a lag, to protect against inflation. The UK Statistics Authority plans to bring the RPI’s methods into line with the CPIH measure of inflation from February 2030, which will change how these adjustments are calculated.

Example: a conventional gilt with a 4% coupon pays £4 a year for every £100 of nominal value, as two payments of £2. When it matures, you get £100 back for each £100 nominal, whatever you paid for it.

What are corporate bonds?

Corporate bonds work the same way, but you’re lending to a company. The FSCS describes a bond as like having an IOU from the company, and says its risk typically depends on the creditworthiness of the issuer. Companies usually pay higher interest than the government to compensate for the greater risk that they can’t pay you back. Gilts are generally considered less risky than corporate bonds.

How do bond prices and yields work?

Once issued, bonds are bought and sold at a market price that can be above or below their nominal value. The yield is the return you get for the price you pay. The DMO explains that price and yield move in opposite directions: when prices rise, you’re paying more for the same fixed payments, so the yield falls, and when prices fall, the yield rises.

Running yield: the coupon divided by the price you pay. A 4% coupon gilt bought at £80 has a running yield of 5%.
Redemption yield (yield to maturity): an estimate of your total return if you buy at today’s price and hold until the gilt matures, including any gain or loss on the price.

The main reason bond prices change is interest rates. When rates rise, existing bonds with lower coupons become less attractive, so their prices fall. Longer-dated bonds are affected most. In September 2022, gilt prices fell so sharply that the Bank of England stepped in with temporary purchases of long-dated gilts to restore orderly market conditions.

How are gilts and bonds taxed?

	Interest (coupons)	Gains when you sell or they mature
Gilts held directly	Taxed as savings income	Free of Capital Gains Tax
Sterling corporate bonds that are normal commercial loans (“qualifying corporate bonds”)	Taxed as savings income	Free of Capital Gains Tax
Bonds in other currencies	Taxed as savings income	May be subject to Capital Gains Tax
Bond funds and ETFs	Usually paid as interest distributions	Gains on the fund are subject to Capital Gains Tax

Interest uses your Personal Savings Allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate and nothing at the additional rate), and from 6 April 2027 savings income above it is taxed at 22%, 42% or 47%. Inside a stocks and shares ISA or a pension, none of this applies.

Because the gain on a gilt is tax-free but the coupon isn’t, gilts with low coupons bought below £100 return more of their value as a tax-free gain, which some investors outside ISAs find attractive. If the nominal value of your gilts and bonds is more than £5,000 at any point in the tax year or the previous one, the accrued income scheme can also tax the interest built up between coupon dates when you buy or sell. There’s no stamp duty when you buy gilts or most other bonds.

Our guide to tax on investments explains savings interest and Capital Gains Tax in more detail.

How do you buy gilts and bonds?

Through an investment platform or stockbroker, which is how most people buy them. Gilts are traded on the London Stock Exchange like shares, and many platforms offer them in ISAs and pensions.
Through the DMO’s Purchase and Sale Service, run by Computershare, for UK residents. To buy, you first join the DMO’s free Approved Group of Investors. Commission is 0.7% on deals up to £5,000 (with a £12.50 minimum on purchases), then £35 plus 0.375% of the amount above £5,000, and you can’t set a price limit.
Through a bond fund or ETF, which holds many bonds at once. It spreads your money across issuers and dates, but never matures, so there’s no fixed amount to get back. Our ETF guide explains how ETFs work.

Can you hold gilts and bonds in an ISA?

Yes. ISA rules allow gilts, other government securities, and corporate bonds that meet the listing conditions, with no minimum time to maturity since a five-year rule was removed in 2014. Under the ISA rules starting on 6 April 2027, the government has confirmed that corporate and government bonds, including gilts, aren’t treated as cash-like, so they can make up a stocks and shares ISA in full.

What are the risks of gilts and bonds?

Interest rate risk. Prices fall when interest rates rise. Holding to maturity avoids this for a single bond, but you may need to sell earlier.
Inflation risk. Fixed coupons buy less as prices rise. Index-linked gilts address this, but their payments can fall if the RPI falls.
Credit risk. A company can fail to pay interest or repay you. Gilts are UK government liabilities, so this risk is much lower.
Liquidity. Some corporate bonds, and especially mini-bonds, which the FSCS describes as illiquid and high risk, can be hard to sell.

If the platform holding your bonds fails, the FSCS may pay up to £85,000 per person, per firm. It doesn’t cover falls in value or poor investment performance.

Bonds are often used alongside shares to steady a portfolio. Our guide to index funds explains how diversification works, and our guide to general investment accounts covers holding bonds outside an ISA.

Sources

Our guides are general information and education, not personal financial advice. If you are unsure whether an investment is right for you, speak to a regulated financial adviser. Capital at risk. Investments can fall as well as rise, and you may get back less than you put in.