Back to basics: The taxation of gilts

Gilts are sterling-denominated bonds issued by HM Treasury. A number of favourable tax rules govern their treatment (including withholding tax and stamp duty exemptions). For individuals, gilts are exempt from capital gains tax with income tax generally only arising in connection with accrued or paid interest. Specific rules apply to strips of gilts, including the process of stripping and reconstituting stock. Companies are generally taxed in accordance with their accounting treatment, with special rules applying, eg, to index-linked gilts. Non-resident holders may benefit from certain tax exemptions which apply depending on the inclusion of 'FOTRA' conditions in the gilt prospectus.