CATEGORY: Investing
DESCRIPTION: Gilts are loans to the UK government — and they're back in favour as yields have risen. Here's what they are, how to buy them, and where they fit in a portfolio.

SECTION: What Are UK Gilts?
Gilts are UK government bonds — essentially loans you make to the British government in exchange for regular interest payments (called the coupon) and the return of your money at a set future date (the maturity date). The name comes from the original gold-edged certificates issued to early investors.

Gilts are considered one of the safest investments available, because the UK government is extremely unlikely to default on its debt. However, safe doesn't mean risk-free — gilt prices move in the market, and if you need to sell before maturity, you might get more or less than you paid.

SECTION: How Gilts Work
When you buy a gilt, you're typically buying either:
- A conventional gilt, which pays a fixed coupon (e.g. 4% per year) twice annually and returns the £100 face value at maturity.
- An index-linked gilt, where the coupon and face value are adjusted in line with inflation (as measured by the RPI).

Gilts are issued with different maturity dates — from very short-term (under a year, sometimes called Treasury Bills) to very long-term (40+ years). The yield (the effective annual return, factoring in the current market price) varies depending on demand, economic conditions, and Bank of England policy.

SECTION: Why Gilts Have Become More Interesting
For many years, gilt yields were extremely low — sometimes below 1% — making them unattractive compared to cash savings. But as the Bank of England raised interest rates significantly from 2022 onwards, gilt yields rose sharply. By 2025–2026, short-dated gilt yields were around 4–5%, making them competitive with cash ISAs while offering the unique advantage of being tradeable securities.

SECTION: How to Buy Gilts You have two main options:

Direct purchase: You can buy gilts directly from the UK Debt Management Office through the Gilt Purchase and Sale Service, or buy them on the secondary market through a stockbroker or investment platform. Buying individual gilts requires understanding the price, yield, and maturity — it's more complex than buying a fund.

Gilt funds and ETFs: For most retail investors, a gilt fund or gilt ETF (exchange-traded fund) is simpler. These pool money from many investors and hold a range of gilts. You can buy them through most Stocks and Shares ISAs or trading platforms. Examples include iShares UK Gilts ETF and Vanguard UK Government Bond Index Fund. Gilt ETFs can be bought and sold like shares throughout the trading day.

SECTION: The Relationship Between Gilts and Interest Rates
Gilt prices and yields move inversely. When interest rates rise, new gilts pay higher coupons, making existing lower-coupon gilts less attractive — so their prices fall. When interest rates fall, existing gilts with higher coupons become more valuable — so their prices rise.

This means gilt funds can make capital gains when rates fall, but can fall in value when rates rise. Long-dated gilt funds are more sensitive to rate changes than short-dated ones. Understanding this is essential before investing.

SECTION: Gilts Within a Portfolio
Gilts are often used as a counterbalance to equities (shares) in a diversified portfolio. Historically, when equity markets crashed, gilt prices often rose as investors sought safety. However, this relationship is not guaranteed — in 2022, both equities and gilts fell together due to rising inflation and interest rates.

For income-focused investors, index-linked gilts provide inflation-protected returns. For retirees and cautious investors, short-dated gilts offer near-cash security with a modest yield. For those prepared to take more risk, longer-dated gilts offer the potential for capital gains if rates fall.

SECTION: Tax Treatment
Coupon payments from gilts are subject to income tax but exempt from capital gains tax. This makes direct gilt investment particularly attractive for additional rate taxpayers who have significant capital gains exposure elsewhere. Inside an ISA or SIPP, all gains and income are sheltered from tax.

SECTION: SimpleMoney Verdict
Gilts aren't just for institutions and pension funds. For UK investors seeking diversification beyond equities and cash, gilt funds offer an accessible way to add some government bond exposure to a portfolio. Start with a short-dated gilt fund or ETF if you're new to the asset class — they carry less price volatility than longer-dated alternatives.