UK Gilt Yield Calculator - After-Tax Return

The after-tax yield on a gilt is the return you actually keep once HMRC has taxed the coupon, and for many investors it beats a savings account because the capital gain on a gilt is completely free of Capital Gains Tax. A higher-rate taxpayer earning 4.25% in a savings account keeps only 2.55% after tax, but a comparable low-coupon gilt bought below par can net around 4% because most of the return arrives as the tax-free rise from your purchase price up to the £100 redemption value. That gap is the whole reason gilts have become the quiet favourite of UK savers who have used up their allowances.

This page explains how a gilt yield calculator turns a messy bond price into a clean after-tax number you can compare against your bank, and how to use that number to make a sensible decision.

What does the gilt yield calculator tell you?

A gilt yield calculator takes the gilt's clean market price, its coupon, and its redemption date, and works out two things that matter: the gross yield to maturity (YTM) and, crucially, your gilt after tax return once your marginal rate is applied to the coupon only. Because UK individuals pay no Capital Gains Tax on gilts, the calculator treats the pull-to-par capital gain as tax-free and taxes just the twice-yearly coupon. The output you really want is the "equivalent savings rate" - the gross interest a bank would have to pay you to match the gilt after tax.

• What gilts are: UK government bonds issued by HM Treasury through the Debt Management Office (DMO). They pay a coupon twice a year and redeem at £100 par on a fixed date.
• Capital gains are CGT-free: for individuals, the gain when a gilt rises towards £100 is exempt from Capital Gains Tax - these are genuinely CGT-free gilts.
• The coupon is taxed as savings income: at your marginal rate for 2026/27 of 20%, 40% or 45%.
• Rates rise soon: from April 2027 savings income tax rates increase to 22%, 42% and 47% (announced in the Autumn Budget 2025).
• Personal Savings Allowance: £1,000 for basic-rate, £500 for higher-rate, £0 for additional-rate taxpayers.
• Low-coupon is the trick: a low coupon gilt bought below £100 delivers most of its yield as the tax-free climb to par.
• Wrappers make it disappear: gilts held in an ISA or SIPP are entirely tax-free, coupon included.

Why does a gilt beat a savings account after tax?

The difference comes down to how each return is taxed. Savings interest is taxed in full above your Personal Savings Allowance, so every extra pound a bank pays you is shaved by your marginal rate. A gilt splits its return into two parts - the small taxable coupon and the much larger, tax-free capital gain - so far less of it is exposed to HMRC.

Take a 4.25% savings account. A basic-rate taxpayer who has used their PSA keeps 3.40%; a higher-rate taxpayer keeps just 2.55%; an additional-rate taxpayer keeps 2.34%. A low-coupon gilt offering a similar gross yield can net a higher-rate taxpayer around 4%, because the coupon being taxed is tiny and the rest is the CGT-free rise to par. The table below shows how the same headline rate shrinks differently depending on the wrapper and the tax band.

The pattern is clear: the higher your tax band, the bigger the advantage of moving money out of a taxable savings account and into a low-coupon gilt or a tax wrapper. If you want to see the numbers side by side for your own balance, the gilt vs savings calculator runs the comparison directly, and the savings interest tax calculator shows exactly how much of your bank interest HMRC takes once your PSA is gone.

How does low coupon gilt tax actually work?

This is the heart of the strategy, so it is worth being precise. A gilt has a fixed coupon - say 0.25% or 0.5% - set when it was first issued. If interest rates have risen since, the gilt's price falls below £100 so that new buyers still get a competitive total return. You might buy a gilt at, say, £92 today knowing it will redeem at exactly £100 on its maturity date.

That £8 gain per £100 of nominal is a capital gain, and for individuals it is exempt from Capital Gains Tax. Only the small coupon is taxed as savings income. So a gilt yielding around 4.25% gross might pay barely 0.3% as a taxable coupon and deliver the other ~3.95% as a tax-free pull to par. Compare that with a savings account where the entire 4.25% is taxable, and you can see why low coupon gilt tax treatment is so attractive to higher and additional-rate taxpayers. It is the legitimate, mainstream way to earn a near-cash return while handing HMRC very little.

One caveat: the headline coupon is paid before tax, so basic-rate taxpayers with spare Personal Savings Allowance may find a higher-coupon gilt or even a savings account works just as well for small sums. The advantage of going low-coupon grows with the size of your pot and the height of your tax band.

How the gilt yield calculator works

Behind the scenes, the calculator follows the same steps a fund manager would, just faster:

• Step 1 - Yield to maturity. It computes the YTM: the single annualised rate that makes the present value of every future coupon plus the £100 redemption equal to today's clean price. Yield to maturity is the honest "all-in" return if you hold the gilt to its maturity date, capturing both the coupons and the gain to par.
• Step 2 - Split the return. It separates the taxable coupon income from the CGT-free capital gain, because only the first part is taxed.
• Step 3 - Apply your tax rate. It taxes the coupon at your marginal savings rate (20%, 40% or 45% for 2026/27), after any Personal Savings Allowance you still have, and leaves the capital gain untaxed.
• Step 4 - Net it down. It produces your gilt after tax return and the equivalent savings rate, calculated as net gilt yield ÷ (1 − your tax rate), so you can see what a bank would have to pay to match it.

If you are comparing several gilts with different maturities, the gilt ladder calculator stacks them into a staggered schedule so cash matures when you need it, and the index-linked gilt calculator handles the different mechanics of inflation-linked gilts, where the principal itself rises with inflation rather than paying out as a fixed gain.

What does yield to maturity mean for your decision?

Yield to maturity is the number to anchor on, because a gilt's "coupon" and its "yield" are not the same thing. The coupon is fixed in cash terms; the yield depends entirely on the price you pay. Buy below par and your yield is higher than the coupon; buy above par and it is lower. YTM rolls the price, the coupons and the redemption gain into one comparable figure.

For a tax-aware investor the after-tax YTM is what counts. Two gilts maturing on the same day can have identical gross YTMs but very different after-tax returns, simply because one has a high taxable coupon and the other has a low one with most of its return in the CGT-free gain. The calculator surfaces this so you are not fooled by a tempting headline coupon that quietly hands more to HMRC.

How to get the most tax-free return

Once you understand the mechanics, a few practical moves squeeze the most out of CGT-free gilts:

• Use your wrappers first. Inside an ISA or SIPP, both the coupon and the gain are tax-free, so there is no need to hunt for low coupons. If you have ISA allowance spare, check the ISA calculator before buying gilts in a taxable account.
• Outside a wrapper, go low-coupon. In a general investment account, prefer gilts trading below £100 with small coupons. That maximises the share of your return that is CGT-free and minimises the taxable slice.
• Match maturity to your goal. Pick a redemption date close to when you actually need the money, so you lock in the YTM rather than gambling on selling at the right price. A ladder smooths this across several dates.
• Mind your Personal Savings Allowance. If you are basic-rate with PSA to spare, a modest taxable coupon costs you nothing; the low-coupon advantage really kicks in once your PSA is used up. Run your wider position through the income tax calculator to see which band your savings income falls into.
• Remember gilts are CGT-free even on big gains. Unlike shares or funds, you never report a gilt gain to HMRC, which keeps things simple if you are also juggling the capital gains tax calculator on other assets.
• Compare against National Savings. For some savers Premium Bonds are the tax-free alternative of choice; the Premium Bonds calculator shows the realistic prize rate so you can weigh it against a guaranteed gilt yield.

You can confirm exactly how a gilt is issued and redeemed at the UK Debt Management Office, check your Personal Savings Allowance on GOV.UK tax-free interest on savings, and read the official position on Capital Gains Tax, which confirms gilts are among the assets you do not pay CGT on.

Who benefits most from holding gilts directly?

The bigger your savings pot and the higher your tax band, the more a low-coupon gilt outshines a savings account. A higher-rate taxpayer with, say, £50,000 sitting in a taxable easy-access account is handing 40% of every pound of interest to HMRC once the £500 PSA is gone - switching the bulk of that into low-coupon gilts can lift the take-home return by more than a full percentage point. Additional-rate taxpayers, who get no Personal Savings Allowance at all, gain the most.

For smaller balances, or where your PSA still covers your interest, the simpler route of a savings account or an ISA may serve you just as well. The honest answer comes from running your own figures: feed a real gilt price into the gilt yield calculator, compare the equivalent savings rate against the best bank account you can find, and let the after-tax numbers decide. That is the whole point of a gilt yield calculator - it cuts through the jargon of coupons and par values and tells you, in one number, whether the gilt or the bank wins for someone in your tax band.

This is an estimate to help you compare options, not investment advice. Gilt prices move daily and your return depends on the price you actually pay and the date you sell or redeem. Tax treatment depends on your personal circumstances and may change.

Who should use this calculator

Gilts are UK government bonds, and for higher-rate taxpayers they have an unusual advantage: the capital gain on a gilt is free of Capital Gains Tax, while only the coupon is taxable. That makes low-coupon gilts trading below par unusually efficient compared with a savings account paying the same headline return.

This works out both the running yield and the yield to maturity, and separates the taxable coupon from the tax-free capital element. For an additional-rate taxpayer with a used-up Personal Savings Allowance, the after-tax difference against a savings account can be substantial.

What this calculator assumes

• The capital gain from purchase price to redemption at £100 is free of CGT; the coupon is taxable as income.
• Clean price is quoted per £100 nominal, and gilts redeem at par.
• Coupons are paid half-yearly.
• The gilt is held to maturity, which is what makes the redemption gain certain.

Limitations — what it does not cover

• Accrued interest included in the dirty price you actually pay on purchase.
• Selling before maturity, where the price depends on prevailing rates and the gain is not guaranteed.
• Interest rate risk. Gilt prices fall when rates rise, which matters if you cannot hold to redemption.
• Dealing costs and platform charges, which erode the advantage on small holdings.
• Index-linked gilts, which work differently — see the linker calculator.
• Gilt funds, which do not carry the same CGT exemption as directly held gilts.