UK Bonds Explained: Gilts, Premium Bonds and Tax

UK government gilts are among the safest investments available. Conventional gilts pay a fixed coupon, while index-linked gilts adjust for inflation using RPI.

Premium Bonds pay no interest. Instead your money enters a monthly prize draw with a 3.80% annual prize fund rate and a one-in-21,000 chance per £1 bond of winning each month.

Gilt coupons are taxable income, but capital gains on gilts are completely exempt from CGT. This makes deeply discounted gilts attractive for higher-rate taxpayers.

Gilt yields act as a barometer for investor confidence. Rising yields signal that markets are demanding more compensation to lend to the government, often reflecting inflation fears or fiscal concern.