A gilt is a sterling-denominated bond issued by the UK government to raise funds.
When you buy a gilt, you are lending money to the UK government. In return, the government promises:
Regular interest payments: known as the “coupon” or a dividend, these are paid every six months at a known fixed rate.
Repayment at maturity: the face value, or nominal amount, of the gilt is repaid on the maturity date.
For example, if you hold £1,000 nominal of a 1½% gilt that matures in 2047, you would receive £7.50 every six months until 2047, at which point the government also repays the £1,000 principal alongside the final dividend.
As gilts are issued by the UK government, they are more secure than corporate bonds.
While no investment is completely risk-free, gilts are considered very low risk due to the UK government’s strong credit history. To date, the British government has never failed to make interest or principal payments on gilts. Though it’s important to remember that past performance is not a reliable indicator of future returns.
However, gilt market prices can still fluctuate, which may affect returns.