The coupon bill at the basic rate

For a basic-rate taxpayer the tax on a gilt coupon is 20 per cent of the coupon income after the personal savings allowance, so on an illustrative gilt paying 4.00 per £100, the net income (20%) falls to £3.20 for every £100 held.

What the coupon bill is

A gilt's coupon is savings income paid gross, so no tax is taken before it reaches the holder. For a basic-rate taxpayer the rate that then applies is 20 per cent, checked against GOV.UK and HMRC for the 2025/26 tax year, and the bill is that 20 per cent of the coupon income once the personal savings allowance has sheltered its first slice.

This is the first of three posts that work the same gilt through the three income tax bands. The gilt, the nominal and the coupon are identical in each; only the band changes, so the three can be read side by side as one comparison of what the coupon bill comes to at 20, 40 and 45 per cent.

The gilt used across the series

The illustrative gilt pays a 4.00 per cent coupon, so £4.00 on every £100 of nominal, quoted at a clean price of 98.50. The holding is £50,000 of nominal, which is 500 units of £100, so the annual coupon income is £2,000. None of these is a quote from a real gilt; they are stated so the arithmetic can be followed, and they are the same inputs in the higher-rate and additional-rate posts.

The last row is the net income (20%) figure: the coupon per £100 after 20 per cent basic-rate income tax, here £3.20, and £1,600 on the full £50,000. It is the coupon's after-tax value before any allowance is applied, which is why the table labels the tax row as before allowances rather than as the final bill.

The clean price of 98.50 is there for completeness rather than for this post's arithmetic: the bill is calculated on the coupon, not on the price, so a holding bought below par pays no more or less income tax than one bought at par with the same coupon. The price changes the cost of the holding and the capital it returns at maturity; it does not change the coupon the income tax is worked out on.

The personal savings allowance applied

A basic-rate taxpayer has a personal savings allowance of £1,000 for the 2025/26 tax year, from GOV.UK and HMRC, and it shelters the first £1,000 of a holding's savings income before the 20 per cent rate applies. On the £2,000 coupon above, £1,000 is sheltered and only the other £1,000 bears the 20 per cent rate, so the bill falls from £400 to £200 and the net rises from £1,600 to £1,800.

The allowance is a fixed sum per person per tax year, not a per-holding figure, so the £1,000 here is shared with any other savings income a reader has. The row above shows the coupon bill for this holding alone; a reader whose other interest had already used part of the allowance would see a larger slice of the coupon taxed.

The basic rate is also the band where the starting rate for savings is most likely to leave something available, because it depends on other income being low. A basic-rate reader with little income beyond the personal allowance can have up to £5,000 more of savings income sheltered by that band, beyond the allowance. The figure above ignores it, which is the cautious treatment: it cannot understate the bill, and a reader whose other income leaves some of the band unused would keep more of the coupon than it shows.

What the bill does not include

The coupon bill is only the income tax on the coupon, and three things sit outside it. A disposal of gilts is exempt from capital gains tax for individuals, so any capital gain or loss on the holding carries no tax line at all; the bill is about the income, not the capital. A gilt held inside an ISA or a SIPP pays its coupon free of UK income tax, so a wrapped holding's bill is nil and the net income (20%) column does not describe it. And the accrued income scheme can move the taxable figure up or down from the gross coupon, depending on when the trades settled.

Keeping those three outside the bill is what makes it a clean figure. The 20 per cent applies to the coupon as savings income; the capital, the wrapper and the accrued adjustment are separate questions, handled in their own posts rather than folded into this one.

Where the two figures sit

The conventional gilts list carries the coupon and the income per £100, which are the gross figures the bill is calculated from. The post-tax yield page carries the net income (20%) figure and the net redemption yield, which fold the basic-rate tax on the coupon into the income and the yield so the same gilt can be read after tax.

The two pages answer the two halves of the question: what the coupon pays, and what it keeps after the basic rate. The allowance then adjusts the kept figure for a reader who has not used it elsewhere.

Background, not advice

This article works the basic-rate tax on a gilt coupon; it is general background, not investment, tax or legal advice for any reader's circumstances, and it is not a substitute for professional tax advice. The 20 per cent rate and the £1,000 allowance are for the 2025/26 UK tax year and come from GOV.UK and HMRC; the gilt, the nominal and the coupon are illustrative and not a quote from any gilt. GOV.UK and HMRC are the primary sources for a real rate or allowance.