Shining a light on gilts

As the Autumn Budget approaches, government bonds are coming back into the spotlight.

In what can seem like an effort to confuse, government bonds are often referred to as gilts. There are two good reasons for the name:

• In the distant era of paper certificates, government bonds were on gilt-edged paper. 

• There has never been an instance when the UK government has failed to make the payment due. 

Gilts are effectively IOUs issued by the government to finance the gap between its expenditure and tax receipts. Gilt repayment dates range from less than 12 months right the way through to 2073. Over the years, different governments have generally repaid maturing gilts by issuing new gilts, a process that means the value of gilts outstanding steadily grows. As at early September 2025, the total amount of gilt debt was £2,751 billion – close to £40,000 for every man, woman and child in the UK. Those figures sound daunting, but relative to the size of the economy, they are not out of line with many other developed countries. The 2007/08 global financial crisis drove up government borrowing and, just as it was moving downwards, the pandemic arrived to add more debt. 

In the 2025/26 financial year, the government plans to issue nearly £300 billion in gilts, with over half required to refinance maturing bonds. As of 16th September, it had sold £155.4 billion, and was on track to meet the target. So far, UK and international institutional investors have been willing to buy all the gilts the government puts up for sale, but, like all borrowing, that comes at a price. 

The Office for Budget Responsibility estimates that in 2025/26 the government’s net interest costs will be £111.2 billion, equivalent to about one–third of all income tax receipts. Falling interest rates will do little to reduce the outlay in the short term, as the interest rate on a gilt is generally fixed or linked to Retail Price Index inflation.  

Unlike a number of foreign governments, the UK government does very little to sell its bonds directly to the public. Nevertheless, individual investors have plenty of ways to invest in gilts, both through funds or directly. The direct route has attracted growing attention, not least because while gilt interest is taxable, gilt capital gain is tax free.  

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

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Important information:

This blog is for general information only and does not constitute advice. We recommend you speak to your financial adviser before making any decisions. The information is aimed at retail clients only. No statements or representations made in the article are legally binding upon Shackleton Advisers Limited or the recipient.

All references to taxation are in relation to UK taxation and are based on our current understanding of UK laws and HMRC practices. Tax reliefs may change in the future and may not be maintained.  Tax treatment is based on your individual circumstances. All other information is based on our understanding of current legislation and regulation which may be subject to change.