Gilt-edged Securities (Gilts): Tax Guide for 2026/27

Following the significant increases to Capital Gains Tax (CGT) rates introduced by the Finance Act 2025, investors and their advisors are increasingly seeking tax-efficient asset classes. Gilt-edged Securities (Gilts) offer a highly attractive proposition for the 2026/27 tax year, blending government-backed security with substantial statutory tax exemptions.

This guide explores the legislative framework governing the taxation of Gilt-edged Securities (Gilts), focusing on the capital gains exemption, the income tax treatment of interest, and the specific rules for gilt strips.

Defining Gilt-edged Securities (Gilts)

For tax purposes, the legislation provides a precise definition of Gilt-edged Securities (Gilts). Section 1024 of the Income Tax Act 2007 (ITA 2007) defines them by direct reference to the Taxation of Chargeable Gains Act 1992 (TCGA 1992).

To qualify, the asset must be a security listed in Part II of Schedule 9 to the TCGA 1992 or specified by a Treasury Order.

HMRC’s Capital Gains Manual confirms that the government issues these debts under interchangeable titles, such as “stock” or “loan.  Whether the Treasury issues the debt in bearer or registered form does not alter its correct title or its capital gains treatment.

The Capital Gains Tax Exemption

The most significant tax advantage of holding Gilt-edged Securities (Gilts) is the complete exemption from Capital Gains Tax.

Section 115(1) of the TCGA 1992 dictates that gains accruing on the disposal of gilt-edged securities or qualifying corporate bonds shall not be chargeable gains.

“A gain which accrues on the disposal by any person of— (a) gilt-edged securities or qualifying corporate bonds, or (b) any option or contract to acquire or dispose of gilt-edged securities or qualifying corporate bonds, shall not be a chargeable gain.”

This exemption has applied to all disposals of gilts since 2 July 1986.  Crucially, the legislation extends this tax-free status to options and contracts to acquire or dispose of gilts.

In the 2026/27 tax year, this exemption holds heightened value. The Finance Act 2025 increased the main CGT rates to 18% for basic rate taxpayers and 24% for higher rate taxpayers for disposals made on or after 30 October 2024.  By holding Gilts, investors shield their capital appreciation entirely from these elevated rates.

Income Tax on Gilt Interest

While the capital appreciation of Gilt-edged Securities (Gilts) escapes CGT, HMRC taxes the coupon (interest) payments as savings income.

Taxpayers must declare this interest on their Self-Assessment tax returns. However, low-income investors may benefit from specific allowances to reduce their tax burden. For example, the starting rate for savings provides a 0% tax band for up to £5,000 of savings income.  The government has frozen this £5,000 limit through to the 2030/31 tax year, making it a reliable planning tool for the 2026/27 period.

Gilt Strips: The Exception to the Rule

Advisors must carefully distinguish between standard gilts and “gilt strips”.

A gilt strip occurs when a financial institution separates the right to the capital repayment from the rights to the future interest payments, allowing investors to trade them independently.

While Schedule 9 of the TCGA 1992 treats gilt strips as gilt-edged securities for general CGT purposes, specific anti-avoidance rules override the CGT exemption for individual investors.  HMRC taxes gilt strips held by individuals and non-corporates under the Deeply Discounted Securities (DDS) regime.  Consequently, any profits or losses realised upon the disposal or maturity of a gilt strip fall into the income tax regime rather than capital gains.

Summary of Tax Treatment (2026/27)

Consider reviewing the client’s available Personal Savings Allowance (PSA) and starting rate for savings to determine the most tax-efficient method of structuring their gilt portfolio interest for the 2026/27 tax year.