Both a gilt's coupon and a deposit's interest are savings income, so the savings allowances treat them alike, and the after-tax difference on one sum over one horizon comes from the shape of the return — a discount gilt delivers part of it as exempt capital, while a deposit's whole return is taxable interest.
Both are savings income
It is tempting to think a gilt and a cash account are taxed in fundamentally different ways, but on the income side they are not. A gilt's coupon is savings income paid gross; a deposit's interest is savings income too. Both meet the personal savings allowance and, where it is available, the starting rate for savings, and both are then taxed at the saver's marginal savings rate. The allowances do not favour one over the other.
That means the after-tax difference between the two cannot come from the income tax treatment, because on the income they receive the same treatment. It comes from the other parts of the return: the way a gilt can deliver some of its return as capital, and the way a deposit cannot.
The capital leg is where they part
A deposit pays interest and nothing else; every pound of its return is taxable savings income, and at the end the principal is returned unchanged. A gilt can do something a deposit cannot. Bought at a discount, it delivers part of its return as the pull up to par, and for a UK-resident individual a disposal of gilts is exempt from capital gains tax. So that slice of the return arrives as exempt capital rather than as taxable interest.
This is the one place the tax treatment genuinely diverges, and it works in the gilt's favour on the capital leg while leaving the income leg taxed the same. It is also why a lower-coupon gilt bought at a discount can keep relatively more after tax than a higher-coupon gilt, or than a deposit, delivering the same gross return. The saving is real, but it is a saving on the capital slice, not on the coupon.
One sum, one horizon, stated assumptions
The table puts one sum — £100,000 — over one horizon — a single year — into each of the two places and shows the after-tax value at each band. The inputs are illustrative and stated so the arithmetic can be checked: the gilt pays a 2.00 per cent coupon and delivers a further 2.00 per cent as an exempt capital gain, for a 4.00 per cent total return; the deposit pays 4.00 per cent as taxable interest. Both give £4,000 of gross return; only the gilt's split is part capital. Rates and allowances are for the 2025/26 tax year, from GOV.UK and HMRC.
| Band | Gilt after tax (value of £100,000) | Deposit after tax (value of £100,000) |
| Basic rate | £3,800 | £3,400 |
| Higher rate | £3,400 | £2,600 |
| Additional rate | £3,100 | £2,200 |
The gilt keeps £400 more at every band, and none of it comes from a different income tax rate — both income legs are taxed identically. The £400 is the tax on the £2,000 of capital that the gilt delivers exempt and the deposit cannot. At the basic rate the gap runs £3,800 against £3,400; at the higher rate £3,400 against £2,600; at the additional rate £3,100 against £2,200. Each row is the outcome of the assumptions stated above, not a forecast.
What the comparison is not
The figures above are an illustration of the arithmetic, not a comparison of named products, and several things a real holding would carry are deliberately left out. A gilt's price moves before maturity, so the capital leg that is exempt is also uncertain: the same £2,000 of capital gain could be a loss if the price moves the other way, and the tax exemption does not protect against a fall. A deposit's rate may be variable rather than fixed, and a rate stated for a given day is not a guide to what it will be later.
- A gilt's price moves before maturity, so its capital return — exempt or not — is not certain.
- A deposit rate may be variable, and a fixed rate holds only for its term.
- FSCS protection covers deposits up to a stated limit and does not cover gilts.
- The two legs must share one principal and one horizon, or the comparison means nothing.
Saying what the two are not matters as much as the figure. The comparison shows what a stated set of assumptions produces for one sum over one year; it does not show what either will do next year, and it does not turn on which one is in any sense better. It turns on the shape of the return and the tax treatment of each part.
Where the fuller figures live
The post-tax yield page is where the after-tax comparison is drawn for gilts at each band, using the gross yield and the net redemption yield columns so that the effect of tax on the coupon is visible on the same gilt. The net income (20%) figure shows the coupon per £100 after the basic rate, which is the income leg of the picture. The portfolio page shows the capital leg — the realised P&L on positions already sold — which is the part with no capital gains tax line behind it for a gilt.
Read together, those figures let a reader rebuild the arithmetic above for their own sum and band. The site shows the outcome of the assumptions; the reader supplies the principal, the horizon and the band, and checks the deposit rate against its own dated source.
Background, not advice
This article sets out how a gilt and a cash account compare after tax; 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 rates and allowances are for the 2025/26 UK tax year and come from GOV.UK and HMRC, FSCS protection covers deposits and not gilts as the scheme sets out, and every figure above is illustrative with its inputs stated. GOV.UK, HMRC, the Debt Management Office and the day's market data are the primary sources for a real rate, allowance or price.