Conventional gilts pay the same cash coupon whatever happens to prices, while index-linked gilts scale both the coupon and the repayment by the index ratio so the cash keeps pace with measured inflation.
Two kinds of gilt, one issuer
The UK government issues two broad kinds of gilt, and GiltIQ tracks both. Conventional gilts pay a fixed cash coupon and repay a fixed £100 of nominal at maturity. Index-linked gilts pay a coupon and a repayment that rise with inflation as measured by the Retail Prices Index. The issuer is the same — HM Treasury through the Debt Management Office — so both carry the same credit backing. The difference is what the cash does over time.
The distinction matters because the two answer different questions. A conventional gilt fixes the pounds you will receive; an index-linked gilt fixes what those pounds are worth in real terms. Which one suits a given purpose depends on whether the aim is a known cash amount or a known purchasing power, and this article sets out the mechanism rather than a recommendation.
A conventional gilt pays fixed cash
A conventional gilt's coupon is a fixed percentage of nominal, paid twice a year, and its redemption is exactly £100 of nominal per £100 held. A 4% conventional gilt pays £4.00 a year on £100 nominal and returns £100 at maturity, whatever prices have done in between. The cash is predictable in pounds; what those pounds will buy is not, because inflation erodes purchasing power over the gilt's life.
That fixed-cash feature is the source of the conventional gilt's price behaviour. Because the coupon cannot rise, the market adjusts the price instead when the return it wants changes. A conventional gilt bought at a discount therefore returns more than its coupon over its life, and one bought at a premium returns less — but the coupon payments and the final £100 never change.
An index-linked gilt scales with the index ratio
An index-linked gilt works on a real coupon: a fixed percentage applied not to £100 but to an uplifted nominal. The uplift is the index ratio, which measures how far prices have risen since the gilt was issued. When a coupon is paid, the real rate is applied to £100 multiplied by the index ratio, so the cash payment grows as prices rise. The redemption is scaled the same way, so the amount repaid at maturity is also indexed.
The index ratio scales both the coupon and the redemption alike. It records how far prices have risen since the gilt was issued, so the same percentage is applied to a larger nominal over time.
Because both the income and the repayment are indexed, an index-linked gilt holds its purchasing power in a way a conventional gilt does not. The trade-off is that the cash amounts are not fixed in pounds: they depend on the path of inflation, so the income in any future year is not known when the gilt is bought.
Both kinds side by side
The table below sets the two kinds against each other on the points a reader meets first: what the coupon is applied to, what the repayment is, and what the return is measured against. It describes the mechanism; the figures a real gilt carries are on its own record.
| Feature | Conventional gilt | Index-linked gilt |
| Coupon basis | Fixed rate on £100 nominal | Real rate on £100 times the index ratio |
| Coupon in cash | Same every year | Rises with measured inflation |
| Redemption | £100 per £100 nominal | £100 times the index ratio |
| Return measured as | A cash yield | A real yield |
| What is fixed | The pounds received | The purchasing power received |
The table describes structure, not a ranking. Each kind gives up something the other keeps: the conventional gilt gives up inflation protection, and the index-linked gilt gives up certainty about the cash. Which of those matters more is a question about the holder's purpose and horizon, not about the gilts themselves, which is why the comparison is informative only once the purpose is clear.
Real yield and the inflation assumption
The return on an index-linked gilt is described by its real yield: the return after the inflation the gilt is priced for, rather than the cash return. Because the cash flows are indexed, a real yield is the natural way to compare index-linked gilts with each other. To turn that real yield into an expected cash return, a reader needs an inflation assumption, which the site labels Inflation: the annual rate assumed for cash flows beyond the latest published index figure.
The Inflation figure is an assumption, not a forecast, and it is worth keeping distinct from the index ratio. The index ratio is a fact about prices already published; the Inflation assumption is what a projection adds beyond the latest published figure. Projections that use an Inflation assumption therefore produce estimates rather than contractual amounts, and the site marks them as such.
Where to see them side by side
The conventional gilts in issue and the index-linked gilts in issue are listed separately, each with its own coupon and yield columns, so the two kinds can be read on their own terms. Reading them together shows how the market prices the same government backing in fixed cash on one list and in indexed cash on the other.
A useful habit is to read a conventional gilt's yield and an index-linked gilt's real yield as two ways of describing the same issuer. The gap between them reflects the inflation the market is pricing in, which is why the two lists are often compared rather than read in isolation. Neither yield is a promise of a future cash return on its own.
Background, not advice
This article explains how conventional and index-linked gilts differ; it is general background, not investment, tax or legal advice for any reader's circumstances. Neither kind is free of risk: a conventional gilt's purchasing power can be eroded and an index-linked gilt's cash depends on the path of inflation. Real coupons, index ratios and yields come from the gilt's own record and the published index, which are the primary sources.