Glossary · Fund structure
Gilts
Bonds issued by the UK government: it borrows money, pays interest (usually twice a year) and repays the face value on a set date.
A conventional gilt pays a fixed amount of interest, the coupon, usually every six months until it matures, when the face value is repaid. Index-linked gilts adjust both the interest and the repayment for inflation. Gilts are issued by the Debt Management Office on behalf of HM Treasury.
Gilt prices move the opposite way to interest rates: when market rates rise, existing gilts paying lower coupons fall in price, and the longer a gilt has left until it matures, the larger the move. A gilt held to maturity repays its face value, but one sold earlier can be worth less than was paid for it.
Gains on gilts held directly are free of Capital Gains Tax, while the interest is taxable outside an ISA or pension. Gilt funds and ETFs do not share that exemption: a gain on the fund itself is treated like a gain on any other fund.
On Fundology: Government bond funds
Related terms
- Capital Gains TaxUK tax on the gain made when disposing of an asset held outside a tax wrapper.
- Money market fundA fund that lends money for short periods to governments, banks and large companies, aiming to keep its value steady and earn a return close to short-term interest rates.
- ISAA UK tax wrapper: returns on investments held inside it are free of UK income tax and capital gains tax.
More terms on fund structure
Definitions describe how a term is used on Fundology. This is information, not advice.