Comparison · Investing · 2026/27
Corporate Bond vs Gilt UK 2026/27
Gilts -- UK government bonds -- carry minimal default risk and CGT-free capital gains. Corporate bonds pay a yield premium for taking on company-specific credit risk. This 2026/27 guide compares risk, yield and tax treatment.
Key facts -- 2026/27
- • Gilt capital gains: exempt from CGT
- • Corporate bond capital gains: CGT applies, 18% or 24%
- • Coupon interest (both): taxable, uses Personal Savings Allowance
- • Credit risk: minimal on gilts, company-specific on corporate bonds
- • Yield: corporate bonds typically higher via a credit spread
- • CGT annual exemption 2026/27: GBP 3,000
Risk and Yield
Gilts sit at the top of the UK credit spectrum, backed by the government, so their default risk is treated as negligible for practical investment purposes. Corporate bonds carry a spectrum of credit risk depending on the issuer -- investment-grade companies pay a modest premium over gilts, while high-yield issuers pay substantially more to compensate for a higher chance of default.
Both bond types share interest rate risk -- prices move inversely to rate changes -- but corporate bonds add an extra layer of credit spread risk on top.
Worked Example: GBP 10,000, 5-Year Bond
| Bond type | Illustrative yield | Capital gain tax treatment |
|---|---|---|
| 5-year gilt | ~4.0-4.3% | CGT-exempt |
| Investment-grade corporate bond | ~5.0-5.5% | CGT applies (unless in ISA/pension) |
| High-yield corporate bond | ~7-9%+ | CGT applies; higher default risk |
Illustrative only -- actual yields move with market conditions and issuer-specific factors. Use the capital gains tax calculator to estimate CGT on corporate bond gains.
Side-by-Side Comparison
| Factor | Gilt | Corporate bond |
|---|---|---|
| Default risk | Negligible | Issuer-dependent |
| Yield | Lower | Higher |
| Capital gains tax | Exempt | Applies |
| Coupon tax | Taxable (uses PSA) | Taxable (uses PSA) |
| Best for | Capital preservation | Yield-seeking, risk-tolerant |