Gilts and bonds

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16. Tax

1. Income from gilts is treated as investment income and liable to basic and higher rate tax.

   For all securities acquired after April 1998, it is paid gross i.e. the Bank of England does not deduct tax before sending payment to the holder.

   Special rules apply to the accrued interest which may be part of your contract price.

2. Capital gains from gilts and most qualifying bonds are not taxable.

   When you invest in gilts or corporate bonds, give some thought to whether you want your return to be mainly income, mainly gain, or a blend of the two, and then select accordingly. Ask your broker about 'strips' which are gilts broken down into their income and capital elements.

Remember that gilts and bonds, and funds investing in them, can be held in PEPs and ISAs and sheltered from tax. A corporate bond ISA which has 60% or more of its investments in corporate bonds, gilts or cash (though not preference shares or convertibles) is entirely tax-free.

1. What are bonds? 2. Different types of issuer 3. Different types of bond 4. Bonds compared to shares 5. Bonds as tradeable instruments 6. Nominal yield 7. Calculation of current yield 8. Capital gains on gilts and bonds 9. Calculating the redemption yield 10. Factors which affect bond prices 11. Are bonds for you? 12. Selecting gilts and bonds 13. How to buy gilts and bonds 14. Unit trusts and bond funds 15. Keeping track of your bond investments 16. Tax 17. Conclusion

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