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Gilts and Bonds at a glance

  • Gilts and bonds pay you a regular income, at a set (although not necessarily fixed) rate and for a set period of time

  • Gilts are issued by the government and bonds by companies

  • They are traded on the stock market so their price can go down and up

Important information

Please remember the value of your investments and any income from them can go down as well as up and you may get back less than the amount you originally invested.

All investments carry an element of risk which may differ significantly. If you are unsure as to the suitability of any particular investment or product, you should seek professional financial advice

How Gilts and Bonds work

Gilts and bonds are a kind of loan from investors to either the government (in the case of gilts) or a company (in the case of a bond).

They usually have a set life. And at the end of that life the original amount of the loan – the 'nominal value' - is usually paid back to whoever holds the gilt or bond at the time. This isn’t always guaranteed though.

Gilts and bonds are traded on the stock market so their price can go down and up.

The return is a combination of interest received and any change in the bond’s value. For overseas bonds, changes in the foreign currency exchange rates may also affect returns.

What are the risks?

Bonds are traditionally known as relatively low risk, especially when compared to equities. However, there are some key risks which should be considered:

Credit risk
The risk that the company or government issuing the bond fail to make payments.

Liquidity risk
The ease with which a bond can be bought or sold.

Interest rate risk
If interest rates rise, the attractiveness of bonds begins to decline as the opportunity to make money in cash becomes greater.

Currency risk
If international bonds are bought, there is a risk that exchange rate fluctuations may cause the value of the bond to change.


Unfamiliar with some of the terms? Our glossary might help.

go to the glossary

Income from Gilts and Bonds

If you are looking for a steady income, gilts and bonds pay income regularly and at a set rate (which is often fixed but can be variable).

You don’t pay tax on income from gilts and bonds if you hold them in an ISA or SIPP Account. For IDA you may have to pay income tax. How much depends on your personal circumstances.

One advantage of gilts or UK bonds is that if you sell them at a higher price than you bought them for this doesn’t usually count as a capital gain for capital gains tax. But there are some circumstances when you might have to pay income tax on a gain.


  • Be clear on your investment goals and how much risk you are prepared to take.

  • Do your research before deciding to buy.

  • Get advice if you need it.

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Inflation and interest rates

If inflation rises or is expected to rise, then the future value of a fixed income will be worth less in today’s money.

And if Interest rates are expected to rise then there’s a chance you could get more income in future for your money in banks or building societies than in the fixed income from your gilts and bonds.


What’s in a name?

Gilts and bonds are usually named to give the key information you need to know about them.

For example a 4% Treasury Gilt 2016 is a Gilt issued by HM Treasury, that pays income at a rate of 4% and is due to be paid back in 2016.

Why Gilts?

Gilts got their name from the paper certificates the Bank of England used to issue to investors. They were ‘gilt-edged’.

Loaner not owner

  • If you have a share in a company you are a part owner of it

  • If you hold a corporate bond the company is your debtor – it owes you money (the bond’s nominal value) and pays you interest on it.

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