UK bond tax explained
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Quick answer: Interest from UK gilts, corporate bonds and bond funds is usually taxed as savings income — the personal savings allowance may cover some of it, but higher earners often owe tax via Self Assessment.
Bonds behave differently from shares for UK tax. HMRC taxes most bond interest as income, not dividends, and gilt gains can have special rules. This guide explains how bond income and gains are taxed in 2026/27.
Last reviewed:
Read the full investing & ISAs guide →Primary source: www.gov.uk/tax-on-bank-and-building-society-accounts
Interest versus capital gains
Coupon payments on corporate bonds and most bond funds count as interest. HMRC applies income tax rates after your personal allowance and personal savings allowance.
When you sell a bond or fund for more than you paid, the profit may be a capital gain taxed under CGT rules unless a gilt exemption applies. Bond fund prices move with interest rates, so gains and losses are common even if you hold to collect coupons.
Gilts and reporting
Gains on qualifying UK government bonds (gilts) held directly by individuals are generally exempt from CGT, which makes them popular with higher-rate taxpayers outside ISAs.
Accrued interest on gilt purchases is part of the taxable interest calculation — platforms usually show this on tax certificates. You pay accrued interest to the seller when buying between coupon dates, and it counts as taxable interest for you.
Using tax wrappers
Holding bond funds in a stocks and shares ISA or pension removes UK income tax on interest and simplifies reporting. This is especially valuable for higher-rate taxpayers who would otherwise owe tax above the personal savings allowance.
Outside wrappers, banks and platforms may pay interest net of basic-rate tax or report gross amounts for Self Assessment. Higher-rate taxpayers must usually top up the difference through their tax return.
Common questions
Are premium bond prizes taxed?
No. NS&I premium bond prizes are tax-free, but they are not bond interest — they are lottery-style prizes.
Do I pay tax on bond ETFs?
Yes, if held outside an ISA. Distributions are usually interest, and selling units can trigger CGT above your annual exempt amount.
What records should I keep?
Keep purchase dates, accrued interest paid, sale proceeds and tax vouchers from platforms to support your Self Assessment figures.