Gilt-Edged Securities and Capital Gains Tax

When you invest in UK government bonds, known as gilts, any profit you make when you sell them is completely free from Capital Gains Tax (CGT). This exemption applies to all UK gilt-edged securities and can make them an attractive option for investors who have already used up their annual CGT allowance or want tax-efficient investments.

What are gilt-edged securities?

Gilt-edged securities—commonly called "gilts"—are bonds issued by the UK government. When you buy a gilt, you're essentially lending money to the government in exchange for regular interest payments (called the "coupon") and the return of your original investment at a specified redemption date.

The name "gilt-edged" comes from the historical practice of printing these certificates with gilded edges, reflecting their status as one of the safest investments available, backed by the UK government.

The Capital Gains Tax exemption explained

Under section 115 of the Taxation of Chargeable Gains Act 1992, disposals of UK gilt-edged securities are exempt from CGT. This means if you buy gilts and later sell them for more than you paid, you won't owe any tax on that profit.

This exemption applies to gilts with redemption dates on or after 1 January 1992. HMRC maintains an official list of exempt gilts, which is updated each time a Treasury Order specifies further exempt securities.

Types of exempt gilts

The exemption covers several categories of gilt-edged securities charged on the National Loans Fund:

Conventional gilts pay a fixed rate of interest and include securities such as Treasury Stock, Exchequer Stock, Treasury Loan, and Conversion Stock. These come with various coupon rates—from as low as 2% to as high as 15½%—reflecting the different interest rate environments when they were issued.

Index-linked gilts have their interest payments and redemption value adjusted in line with inflation (measured by the Retail Prices Index). Examples include 2% Index-Linked Treasury Stock and 4⅜% Index-Linked Treasury Stock with various redemption dates.

Undated gilts have no fixed redemption date and can be held indefinitely. These include securities like 2½% Annuities 1905 or after, 2¾% Annuities 1905 or after, 3½% War Loan 1952 or after, and 2½% Consolidated Stock 1923 or after. The dates shown indicate when the government first gained the option to redeem them, not when they must be redeemed.

Floating rate gilts have interest rates that vary based on market conditions, such as Floating Rate Treasury Stock.

How this affects your investment strategy

The CGT exemption on gilts creates several strategic advantages:

Tax-efficient profits: If you've already used your annual CGT allowance (£3,000 for the 2025/26 tax year), gilts allow you to make additional capital gains without triggering further tax liability.

Portfolio diversification: Gilts provide a low-risk, government-backed investment that's more tax-efficient than many alternatives if you expect capital growth.

Interest vs capital gains: While the interest (coupon) payments from gilts are subject to Income Tax, any profit from selling the gilt itself remains CGT-free. This makes gilts particularly attractive if you're a higher-rate or additional-rate taxpayer concerned about capital gains rather than income.

Planning around the annual CGT allowance: If you're considering selling other assets like shares or property that would trigger CGT, holding some wealth in gilts gives you tax-free growth potential without eating into your allowance.

What the exemption doesn't cover

It's important to understand that the CGT exemption only applies to UK government gilts. It does not cover:

• Corporate bonds issued by companies
• Foreign government bonds
• Interest payments from gilts (these count as income and are taxable)
• Gains from gilt funds or ETFs (exchange-traded funds), which are treated differently for tax purposes

Practical considerations

Gilts are generally considered low-risk investments because they're backed by the UK government. However, their market value can still fluctuate based on interest rate changes and economic conditions. If interest rates rise, the market value of existing gilts typically falls, and vice versa.

You can buy gilts through the UK Debt Management Office, stockbrokers, or on the secondary market through investment platforms. The CGT exemption applies regardless of where you purchase them, as long as they're on the official HMRC list of exempt securities.

For investors holding multiple asset types, the gilt exemption can be particularly valuable when rebalancing portfolios. You can realise gains on gilts without tax consequences and use the proceeds for other investments.

Sources

• Gilt-edged securities exempt from Capital Gains Tax

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.