Why Gilts are back on the radar
UK government bonds (“gilts”) have re-emerged as a meaningful option for private investors. After years of negligible returns, yields are now at their highest for decades. For those with significant cash balances, the comparison is immediate.
Current picture
Ten-year gilts yield around 4.7%.
Thirty-year gilts are close to 5.6%.
Short-dated issues, such as the October 2026 maturity, now compete directly with savings accounts.
How gilts differ from cash
Savings accounts: all interest is taxed as income.
Gilts: buying below £100 and holding to redemption gives a capital gain that is free of capital gains tax. Only the coupon is taxed as income.
This makes low-coupon, short-dated gilts relatively efficient for higher- and additional-rate taxpayers.
Example: October 2026 gilt (0.375% coupon, maturity 22/10/2026)
Current clean price: about £96.40 per £100 nominal.
Capital uplift: £3.60 per £100 (to £100 at redemption). On a £100,000 investment, that is £3,600 tax-free.
Coupon: 0.375% annually, ≈£375 on £100,000. Taxed as income.
Net outcomes if held to maturity (≈1 year):
Higher-rate taxpayer (40%):
Net coupon ≈ £225
Capital gain £3,600 (tax-free)
Total ≈ £3,825
Additional-rate taxpayer (45%):
Net coupon ≈ £206
Capital gain £3,600 (tax-free)
Total ≈ £3,806
Savings account at 4.3% gross for comparison:
Higher-rate taxpayer: £2,580 net
Additional-rate taxpayer: £2,365 net
Even with the smaller uplift at today’s price, the gilt provides a clear after-tax advantage for those in higher brackets.
Inheritance tax context
Cash deposits remain fully exposed to inheritance tax.
Short-dated gilts preserve liquidity, can improve post-tax returns, and provide optionality as IHT reform proposals move through consultation.
Key point
The October 2026 gilt illustrates the case clearly: gilts are no longer a background asset. For many private investors they now offer a practical, tax-efficient alternative to cash, while retaining security and near-term access to funds.