Are UK gilts tax-free?
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In short: Gains on UK government gilts are exempt from Capital Gains Tax. Coupon (interest) payments are taxable as savings income — covered by the Personal Savings Allowance and starting rate for savings.
Content updated:
UK gilts qualify as 'qualifying corporate bonds' under section 115 of the Taxation of Chargeable Gains Act 1992, so any capital gain when you sell or redeem at a profit is CGT-exempt. Losses are also not allowable.
Coupon income is taxable as savings income at the standard Income Tax rates (20% / 40% / 45%), but is covered by the £1,000 / £500 / £0 Personal Savings Allowance and, where applicable, the £5,000 starting rate for savings band.
Low-coupon gilts trading at a discount to par are particularly tax-efficient for higher-rate taxpayers, because most of the return comes as tax-free capital gain rather than taxable income. Buy direct through the DMO's purchase and sale service or any broker.
Primary source: legislation.gov.uk/ukpga/1992/12/section/115
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