Are UK gilts tax-free?
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In short: Gains on UK government gilts are exempt from Capital Gains Tax. Coupon (interest) payments are taxable as savings income — covered by the Personal Savings Allowance and starting rate for savings.
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Reviewed by Kaiser Khan
UK gilts qualify as 'qualifying corporate bonds' under section 115 of the Taxation of Chargeable Gains Act 1992, so any capital gain when you sell or redeem at a profit is CGT-exempt. Losses are also not allowable.
Coupon income is taxable as savings income at the standard Income Tax rates (20% / 40% / 45%), but is covered by the £1,000 / £500 / £0 Personal Savings Allowance and, where applicable, the £5,000 starting rate for savings band.
Low-coupon gilts trading at a discount to par are particularly tax-efficient for higher-rate taxpayers, because most of the return comes as tax-free capital gain rather than taxable income. Buy direct through the DMO's purchase and sale service or any broker.
Primary source: legislation.gov.uk/ukpga/1992/12/section/115
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