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Are gilts overlooked by high earners?

ended 01. July 2026

Many investors are overlooking one of the few remaining tax-efficient opportunities available outside an ISA or pension: low coupon UK government bonds, known as gilts.

While most people compare investments based on their advertised return, the tax treatment can make an even bigger difference.

Unlike interest earned on a standard savings account, capital gains made on UK government gilts are exempt from Capital Gains Tax.

What makes low coupon gilts particularly attractive is that they pay relatively little interest each year, meaning a larger proportion of the overall return comes from the tax-free uplift to their £100 redemption value rather than taxable income.

As an example, a gilt maturing in July 2027 with a gross yield of 4% that currently trades at £97.25.

Although the 1.25% annual coupon is taxable, the £2.75 gain when the bond matures at £100 is tax free.

The strategy is particularly attractive for people holding significant sums outside ISAs or pensions, perhaps following an inheritance, business sale or years of accumulated savings.

  • Are gilts overlooked by high earners?
  • What are the pros and cons of gilts?
  • Any other thoughts on gilts?

Responses by tomorrow.

4 responses from the Newspage community

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Editor
Paul Denley
CEO at Oakham Wealth Management
Low coupon gilts are probably underused rather than overlooked. Most higher rate taxpayers compare headline savings rates, but after tax the picture can look very different. Their appeal lies in the tax free uplift to the £100 redemption value rather than taxable income, meaning a larger proportion of the overall return comes from capital gains, which are exempt from Capital Gains Tax. They're backed by the UK government and, if held to maturity, provide a known redemption value. The trade off is that prices can fluctuate if sold early, the coupon remains taxable, and, if held to maturity, the return is fixed at the point of purchase. They're not right for everyone, but for investors holding substantial taxable cash outside ISAs or pensions - perhaps following an inheritance, business sale or years of accumulated savings - they can be one of the more tax efficient options available.
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Graham Nicoll
Financial Planner, Chartered FCSI at NCL Wealth Partners
Gilts can be useful although are often overlooked among higher earners with substantial taxable portfolios.
Low-coupon gilts can improve after-tax returns because much of the return may come from a tax-free capital gain at redemption rather than taxable income.
Buying individual gilts gives certainty over maturity value if held to redemption and allows investors to match cash-flow needs. However, it requires careful selection, reinvestment decisions and diversification.
A gilt fund or portfolio offers broader diversification, professional management and easier access, but lacks a fixed redemption date, so returns depend on interest rates and market pricing. Gilts remain useful for capital preservation and portfolio diversification, but investors should consider tax, duration and their overall financial goals before investing.
P.S. It also relies on the government being able to meet their commitments.
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Editor
Nouran Moustafa
Practice Principal & IFA at Roxton Wealth
Low-coupon gilts are not glamorous. That is why many high earners overlook them. We are trained to chase the headline rate, the exciting fund or the next tax wrapper, while a straightforward government bond can quietly do something powerful in a taxable portfolio.

This is not a loophole. Coupon income is taxable, but the capital uplift on an eligible gilt is outside CGT. For somebody with cash outside an ISA or pension, that can make the after-tax return far better than the advertised yield suggests.

But this is not free money. A gilt sold before maturity can fall in value if rates rise, and longer-dated gilts can move sharply. The right question is not “what pays the biggest rate?” It is “what do I keep after tax, when do I need the money, and can I tolerate the journey?”

Gilts deserve a place in the conversation, particularly for higher-rate taxpayers. Not because they are clever. Because good planning is often about keeping more of what you have already earned.
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Editor
Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
Gilts can play a useful part in an overall financial plan. This strategy relies on not needing the money until the maturity date (although you could sell before then) in order to lock in a guaranteed rate of return.

It can work well when there is a known expenditure at a future date like a tax bill, asset purchase, or even a wedding or balloon payment on a car.