Tax on UK Gilts and Corporate Bonds 2026/27

Fixed income investments -- gilts and corporate bonds -- have become significantly more popular as interest rates have risen. With yields on 10-year gilts running at levels not seen in over a decade, more UK savers are looking at this asset class for the first time. But the tax treatment of gilts and bonds is not straightforward, and getting it wrong can lead to unexpected tax bills. This guide covers all the key rules for 2026/27.

What Are Gilts and Corporate Bonds?

UK gilts (formally called UK government securities or Gilt-edged securities) are bonds issued by the UK government. They pay a fixed coupon (interest) and return the face value at maturity. Corporate bonds work similarly but are issued by companies and carry higher yields reflecting greater risk.

Both types of investment can be bought directly, through a fund, or via an ISA wrapper. The tax treatment varies considerably depending on how you hold them.

Tax on Interest Income

Interest paid on gilts and corporate bonds is taxable income in the UK, treated in the same way as bank interest. It is added to your other income and taxed at your marginal rate:

• Basic rate taxpayers: 20% (after the Personal Savings Allowance)
• Higher rate taxpayers: 40% (after the PSA)
• Additional rate taxpayers: 45% (no PSA)

The Personal Savings Allowance (PSA) for 2026/27 allows basic rate taxpayers to receive GBP 1,000 of interest tax-free, and higher rate taxpayers GBP 500. Additional rate taxpayers receive no PSA. Bond interest that falls within the PSA is not taxable. Once you exceed the allowance, the excess is taxed at your marginal income tax rate.

If you hold bonds through a fund, interest distributions are taxed as savings income in the same way.

Capital Gains Tax on Gilts: The CGT Exemption

Here is where gilts have a unique advantage: capital gains made on the disposal of qualifying UK government securities (gilts) are exempt from Capital Gains Tax. This means that if you buy a gilt below its redemption value and hold it to maturity -- or sell it at a profit -- you pay no CGT on the gain.

This makes gilts particularly attractive for higher and additional rate taxpayers who have used their CGT Annual Exempt Amount (GBP 3,000 for 2026/27) and do not want further gains taxed at 24%.

Stripped gilts (where the coupon and principal are traded separately) can be caught by accrued income rules, so take care if trading in the secondary market.

Capital Gains Tax on Corporate Bonds: Different Rules

Most corporate bonds -- specifically those classified as Qualifying Corporate Bonds (QCBs) -- are also exempt from CGT on disposal. A QCB is broadly defined as a sterling-denominated bond that is not convertible into shares.

However, non-qualifying corporate bonds (NQCBs) -- which include some convertible notes and foreign currency bonds -- are subject to CGT in the normal way. Gains on NQCBs are taxed at 18% (basic rate) or 24% (higher/additional rate), after deducting the GBP 3,000 AEA.

If you are unsure whether a bond is a QCB, check the bond's prospectus or seek advice before selling.

Accrued Income Scheme

When you buy or sell a bond between coupon dates, part of the price represents accrued interest -- the interest that has built up since the last coupon payment. HMRC's Accrued Income Scheme (AIS) ensures this is taxed as income rather than as a capital gain.

The AIS applies if the total nominal value of all your interest-bearing securities exceeds GBP 5,000 at any time in the tax year. If you are below this threshold, the rules do not apply and accrued interest is treated simply as part of the purchase or sale price.

Holding Gilts and Bonds in an ISA

All income and gains within an ISA are tax-free. The annual ISA allowance is GBP 20,000 for 2026/27. Holding bonds within a Stocks and Shares ISA shelters coupon income from income tax and eliminates any CGT considerations entirely.

This is especially valuable for bonds that fall outside the QCB definition, where gains would otherwise be taxable. ISA wrappers also avoid the complexity of the Accrued Income Scheme.

Offshore Bonds

Some investors hold bonds through offshore insurance bond wrappers. Offshore bonds offer tax deferral -- no tax is charged as income or gains accumulate. Tax is only triggered when you take a withdrawal (called a chargeable event). At that point, top-slicing relief can reduce the effective rate, particularly useful if your income varies year to year.

Offshore bonds are complex and usually only appropriate for higher rate taxpayers with significant assets. They should be reviewed alongside full personal tax planning advice.

Practical Planning Points

• If you are a basic rate taxpayer with modest savings, your PSA (GBP 1,000) may cover all your gilt coupon income.
• Higher rate taxpayers benefit most from holding corporate bonds in an ISA to avoid 40% income tax on coupons.
• Gilts held outside an ISA still benefit from CGT exemption, making them a useful way to take gains without tax.
• Watch the AIS threshold if you are an active bond trader -- accrued income can add up quickly.

Use the CalcHub savings and income tax calculator to model how bond income affects your overall tax position:

Income Tax Calculator -- CalcHub