What are UK gilts and how can I buy them?

Key takeaways

• UK gilts are government-backed bonds, offering a low-risk way to earn fixed or inflation-linked returns

• You can buy gilts directly, through brokers, or via funds and ETFs, each with different costs and flexibility

• Gilts can be held in ISAs for tax-free growth, and your initial investment is protected if held to maturity

There are many ways to save and invest your money depending on your goals and how much risk you’re happy to take. From easy access savings accounts and ISAs to stocks, shares and bonds, each option offers different levels of return and security. One lower-risk option backed by the UK government is a gilt.

What is a gilt?

A gilt is a UK government bond issued to raise money for public spending. When you buy a gilt, you’re effectively lending money to the government in return for regular interest payments, known as coupons, and your full investment back at the end of a fixed term. Gilts are seen as low-risk because they’re backed by the UK government, though their market value can still fluctuate if interest rates change.

How do gilts work?

Gilts work by allowing the UK government to borrow money from investors in exchange for fixed interest payments. When you buy a gilt, you pay a set price and receive regular coupon payments until the bond matures. At maturity, the government repays the face value of the gilt. The price of gilts can rise or fall in the market depending on interest rates – when rates increase, gilt prices typically fall, and vice versa.

How can I buy gilts?

You can buy gilts in several ways, depending on how hands-on you want to be. The most direct method is through the UK Debt Management Office’s (DMO) Gilt Purchase and Sale Service, run by the Bank of England, although this tends to suit larger investors.

Most people prefer to buy gilts through investment platforms or stockbrokers such as Hargreaves Lansdown, AJ Bell or interactive investor, where you can purchase them like shares.

You can also invest indirectly via gilt funds or exchange-traded funds (ETFs), which pool money from multiple investors to hold a portfolio of government bonds.

This option provides diversification and easier access without needing to buy individual gilts. All methods offer exposure to UK government bonds with varying levels of flexibility and involvement.

How do gilts differ from other types of bond?

Gilts differ from other bonds mainly in their level of risk and issuer. Gilts are issued by the UK government, making them among the safest investments available, as they’re backed by the state.

Other bonds are issued by companies or local authorities and carry higher risk, meaning they typically offer higher returns. While all bonds pay interest and repay capital at maturity, gilts are prized for their stability and reliability over profit potential.

How is the value of gilts calculated?

The value of gilts is based on several key factors, including

• interest rates

• inflation expectations

• time to maturity

Each gilt has a fixed face value and a coupon rate (the interest it pays). However, its market price changes as interest rates move – when rates rise, gilt prices fall because newer bonds offer better returns, and when rates fall, existing gilts become more valuable.

Investors also consider inflation, credit risk, and the remaining term when calculating a gilt’s current market value.

How to choose the best gilt to buy?

There are a few considerations before deciding which gilt to buy. These include:

• Interest rate outlook. If you think interest rates will fall, longer-term gilts may offer better value as their prices could rise

• Term length. Short-term gilts are less sensitive to rate changes and suit cautious investors, while long-term gilts can deliver higher returns but carry more price risk

• Yield and coupon. Compare the annual interest (coupon) and yield to maturity to assess potential returns. The yield differs from the coupon because it is the effective return on a gilt, showing the annual income as a percentage of its current market price

• Investment goals. Match gilt choices to your risk tolerance and timeframe for holding

Do gilts offer tax benefits?

Yes, gilts offer certain tax advantages compared with other investments.

Interest from UK gilts is generally subject to income tax, but it is paid without tax deducted at source, giving you more control over allowances.

Individual Savings Accounts (ISAs) can hold gilts, meaning the interest and any capital gains are tax-free.

In contrast, returns from corporate bonds or shares may attract income tax on interest, dividend tax, or capital gains tax when sold at a profit.

For investors seeking lower-taxed, low-risk options, gilts, especially held in ISAs, can be a more tax-efficient way to generate income.

Is my money safe if I buy gilts?

Yes, gilts are considered one of the safest investments in the UK because they are backed by the government.

When you buy a gilt, the UK government promises to pay both the fixed interest (coupon) and the full capital at maturity.

While the market price of gilts can fluctuate if interest rates change, your original investment is guaranteed if you hold the gilt to maturity.

This makes them much lower risk than corporate bonds or shares.

What are the alternatives to investing in gilts?

While gilts can be a safe investment option, there are many other ways to try to grow your money. These include:

• Corporate bonds. Issued by companies, they typically offer higher interest than gilts but carry more risk if the company defaults

• Savings accounts. Provide low-risk, accessible interest, but returns are usually lower than gilts or other investment options

• Stocks and shares. Investing in individual companies or funds can offer higher returns but comes with greater volatility and risk

• Bond funds or ETFs. Pooled investments holding a range of bonds, offering diversification and easier access than buying individual gilts

• Premium Bonds. Government-backed, tax-free prizes instead of fixed interest, offering a chance to win but no guaranteed return

• Property or REITs. Investing in real estate directly or via funds can provide income and growth, though liquidity and market risk vary

Compare savings and investment options with MoneySuperMarket

MoneySuperMarket makes it simple to compare a wide range of savings and investment products in one place.

From easy-access and fixed-rate savings accounts to cash ISAs, stocks and shares ISAs, bonds and private pensions, you can see key features like interest rates and minimum deposits at a glance.

Our tools help you quickly identify products that match your goals, whether you’re seeking low-risk income, long-term growth, or a tax-efficient way to save.