How are gilts taxed?
Answered 11 March 2026
Here is a comprehensive summary of how gilts are taxed across the main tax heads:
How Are Gilts Taxed?
Gilts are UK Government debt securities (also called "government securities") issued by the Treasury.
What the law says
Capital Gains Tax – Exemption A gain accruing on the disposal of gilt-edged securities (or any option or contract to acquire or dispose of them) shall not be a chargeable gain: TCGA 1992 s.115(1).
Gilt Strips – Deeply Discounted Securities Gilt-edged securities that are not strips are expressly excluded from the deeply discounted securities regime (ITTOIA 2005 s.432(1)(b)). Gilt strips, however, are treated as deeply discounted securities and fall within the income tax regime on profits.
Accrued Income Scheme Tax is charged on the full amount of accrued income profits treated as made in the tax year (ITA 2007 s.617). The accrued income scheme adjusts the CGT disposal consideration and acquisition cost to exclude amounts already brought into income (TCGA 1992 s.119).
HMRC Guidance / Practice
1. Interest on Gilts – Income Tax Interest on gilts is charged to income tax under Chapter 2 of Part 4 of ITTOIA 2005 (s.369). This covers interest on securities issued by governments. (For companies, interest falls within the loan relationships rules instead.)
2. Capital Gains – Full Exemption Profits or losses on the sale of gilt-edged securities are not charged under an income regime and are exempted from CGT by TCGA 1992 s.115. This means there is no tax charge on any capital gain (or allowable loss) when gilts are bought and sold.
3. Gilt Strips – Income Regime Gilt strips are treated as deeply discounted securities and fall within the income tax regime. Unlike other deeply discounted securities, there is a deemed annual disposal on 5 April and deemed reacquisition on 6 April at market value, so a charge arises each year even if there is no actual disposal. The taxable amount is the difference between the 5 April market value and either the market value a year earlier or the price paid if acquired during the year. The CGT exemption in s.115 also extends to gilt strips.
4. Accrued Income Scheme (AIS) When gilts are sold, interest accrued to the date of sale is treated as income (not as part of the capital proceeds) under the AIS. The AIS adjusts the CGT base cost/proceeds accordingly. Special AIS rules apply when a gilt is exchanged for strips (or reconstituted): a deemed AIS transfer arises to tax accrued interest up to the date of stripping, but the strips themselves are then dealt with under the deeply discounted securities rules.
5. Inheritance Tax – FOTRA Gilts Gilts are excluded property for IHT purposes if they are FOTRA (Free of Tax to Residents Abroad) gilts held by a beneficial owner who satisfies the relevant conditions (generally, non-residence in the UK). Since 6 April 1998, all gilts are treated as FOTRA securities. For chargeable events on or after 6 April 2025, all FOTRA securities are treated as though no domicile condition were included.
Summary Table
| Tax | Treatment |
|---|---|
| Income Tax (interest) | Taxable as savings income under ITTOIA 2005 s.369 |
| Income Tax (capital profit on sale) | Not taxable – no income regime applies to gilts |
| Capital Gains Tax | Exempt under TCGA 1992 s.115 |
| Gilt strips | Income tax via deeply discounted securities regime (annual deemed disposal); CGT also exempt |
| Accrued income | Taxed as income under the Accrued Income Scheme |
| Inheritance Tax | Excluded property if FOTRA conditions met (beneficial owner non-UK resident) |
Citation sources
There is no statutory definition of ‘interest’. In most cases, it is readily apparent that someone has received interest. The charge to income tax on interest is contained in Chapter 2 of Part 4 of ITTOIA05 at section 369, which includes the following. Interest from UK bank, building society and other savings accounts Interest on gilts, and on other securities issued by governments or companies Interest on loans made privately to individuals or companies Interest received on delayed payments or
Part 4 Savings and investment income Chapter 8 Profits from deeply discounted securities Deeply discounted securities Securities which are not deeply discounted securities 432 1 The following are not deeply discounted securities— a shares in a company, b gilt-edged securities that are not strips, c life assurance policies, and d capital redemption policies. 2 An excluded indexed security (see section 433) is only a deeply discounted security if treated as such under section 431(5) (acquisition b
These are securities issued by the British Government on terms that any profits or gains arising from them are exempt from UK tax provided they are beneficially owned by persons not ordinarily resident in the UK (FA96/S154). With effect from 6 April 1998, FA98/S161 changed the status of gilts issued without FOTRA conditions. Subject to transitional provisions for the Accrued Income Scheme in FA98/S161 (2)(a), all gilts are now FOTRA securities whenever they were issued, including those issued be
The Accrued Income Scheme changes the basis on which interest which has accrued up to the date of sale of most marketable securities is taxed. Instead of forming part of the sale proceeds or purchase price charged to Capital Gains Tax it is now treated as income. Full guidance can be found at SAIM4000. The special rules of TCGA92/S119 apply to the Capital Gains Tax treatment of disposals and acquisitions of securities within the scope of the Accrued Income Scheme. Their broad aim is to adjust th
Gilt strips are deeply discounted securities and first became available in 1998. Unlike other deeply discounted securities (TSEM3225) there is a charge each year even if there is no disposal. There is a deemed disposal on 5 April and deemed reacquisition on 6 April. Both are at the market value at 5 April. The taxable amount is the difference between the 5 April market value, and either: the market value a year earlier, or the price paid for them if they were acquired during the year. The taxabl
‘Government securities’ is a term we use to describe securities issued by the Treasury. These are also known as ‘gilts’. The Treasury can issue, and has issued, securities which are exempt from UK taxation so long as they are in the beneficial ownership of persons who satisfy the conditions attached (usually that the person is not resident or ordinarily resident in the UK). Securities issued with this condition are known as FOTRA (Free of Tax to Residents Abroad) gilts. Gilts are excluded prope
of the gilt. These rights, or ‘strips’, can be traded separately from the underlying right to capital repayment on the gilt itself. FA96 inserted a new TCGA92/SCH9/PARA1A. This has the effect that a gilt strip is also treated as a gilt-edged security for the purposes of TCGA92. So the exemption from capital gains provided by TCGA92/S115 (1)(a), see CG54901, will also apply to gilt strips. Gilt strips held by individuals and other non-corporates are treated as deeply discounted securities, and pr
Gilt strips come within the rules on deeply discounted securities (see SAIM3000 onwards and SAIM3130 for more on gilt strips). The AIS rules only apply when there is an exchange of a gilt for gilt strips, or vice versa. ITA07/S648 deems there to have been a transfer for accrued income scheme purposes whenever a gilt (Government stock) is exchanged for strips of that gilt, or a reconstitution, that is an exchange of gilt strips for the corresponding gilt. In the first case there is an accrued inc
Part IV Shares, securities, options etc. Chapter I General Gilt-edged securities and qualifying corporate bonds Exemptions for gilt-edged securities and qualifying corporate bonds etc. 115 1 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. 2 In subsection (1) above the reference to the disposal of a
Gains or losses on gilt-edged securities are exempted from Capital Gains Tax by TCGA92/S115 (1). Gilt-edged securities (gilts) are UK Government debt. A list of gilt-edged securities is given in TCAG92/SCH9. For further instructions see CG54900+.
Part 12 Accrued income profits Chapter 2 Accrued income profits and losses Charge to tax Income charged 617 1 Tax is charged under this Chapter on the full amount of the accrued income profits treated as made in the tax year. 2 Accrued income profits within section 628(5) (profits treated as made where the settlement day falls within an interest period) are treated as made in the tax year in which the last day of the interest period in which the profits are treated as made falls. 3 Accrued incom
Interest that accrues on securities within the AIS is treated as a payment to or by either the transferor or the transferee, depending on whether the sale of the securities is with or without the accrued interest (also referred to as sales ‘cum-dividend’ or ‘ex-dividend’ - see SAIM4020). The payments for each kind of security are aggregated. An excess of payments received over payments made is charged to income tax as accrued income profits for the tax year in which the period for which the inte
For the purposes of ITTOIA05 all discounts, other than discounts in deeply discounted securities, are treated as interest for tax purposes, ITTOIA05/S381. (Previously, Case III taxed ‘all discounts’.) But this does not mean that someone who acquires a debt security and later sells or redeems it can simply be taxed on their profit. Such profits can only be charged to income tax if they are income rather than capital: and there is an extensive body of case law dealing with this question. SAIM2240