The coupon bill at the higher rate

For a higher-rate taxpayer the tax on a gilt coupon is 40 per cent of the coupon income after a £500 personal savings allowance, so on the same illustrative gilt the net income (20%) column no longer describes the bill — the coupon keeps £2.40 for every £100 before the allowance, and less after it.

The same gilt at a higher rate

This is the second of three posts working the same gilt through the three income tax bands. The gilt, the nominal and the coupon are identical to the basic-rate post that opened the series; only the band changes. A higher-rate taxpayer meets a savings rate of 40 per cent, checked against GOV.UK and HMRC for the 2025/26 tax year, so the coupon bill is larger for the same income.

The illustrative gilt again pays a 4.00 per cent coupon — £4.00 on every £100 of nominal — quoted at a clean price of 98.50, on a holding of £50,000 nominal, for an annual coupon income of £2,000. None of these is a quote from a real gilt; they are the stated inputs that stay fixed across the three posts.

Holding the inputs fixed is the whole point of the series. If the gilt or the nominal changed with the band, a reader could not tell whether a difference came from the tax rate or from the holding. By keeping the coupon and the nominal the same, the only figure that moves between the three posts is the rate and the allowance that sit in front of it.

The bill before the allowance

At 40 per cent the tax on the full £2,000 coupon is £800, and the coupon keeps £1,200. Per £100 of nominal that is a bill of £1.60 and a net of £2.40. The net income (20%) figure from the first post, £3.20 per £100, does not describe this bill: it was solved at 20 per cent, and the higher rate is twice that.

Comparing this table with the basic-rate post shows the whole effect of the band move: the gross coupon is unchanged at £4.00 per £100, the tax doubles from £0.80 to £1.60, and the net falls from £3.20 to £2.40. Nothing about the gilt changed; only the rate applied to its coupon did.

The smaller allowance applied

A higher-rate taxpayer has a personal savings allowance of £500 for the 2025/26 tax year, from GOV.UK and HMRC — half the basic-rate figure. On the £2,000 coupon above, £500 is sheltered and £1,500 bears the 40 per cent rate, so the bill falls from £800 to £600 and the net rises from £1,200 to £1,400. The allowance still helps, but its help is smaller at this band than at the basic rate.

The allowance is a fixed sum per person per tax year, shared with any other savings income, so the £500 here covers this holding only in isolation. A reader with other interest would see less of it left for the coupon, and the bill would move closer to the £800 before-allowance figure.

A higher-rate reader is, by definition, past the point where the starting rate for savings is likely to help: that band is withdrawn once other income passes £17,570, which sits well below the higher-rate threshold. So the allowance is the only shield in front of the 40 per cent rate for most readers at this band, and a small one at that.

Why the gap from the basic rate is more than the rate

The move from the basic to the higher rate is twenty percentage points, but the gap in the bill is wider than that, because the allowance halves at the same time. On the same £2,000 coupon the tax before allowances doubles, from £400 at 20 per cent to £800 at 40 per cent. Once the allowance is applied the bill does more than double: it rises from £200 at the basic rate to £600 here, because the higher rate shelters only £500 rather than £1,000.

So the after-allowance bill triples as the band moves from basic to higher, while the rate only doubles. The extra step comes from the smaller allowance, not from the rate. A comparison across the two bands carries both changes: the rate on the coupon, and the size of the allowance that sits in front of it.

The three posts put the same gilt through each band for exactly this reason. The rate and the allowance both move, and only by holding the gilt fixed can a reader see which part of a change is the rate and which is the allowance. A comparison that changed the gilt as well would hide the answer.

Where the two figures sit

The post-tax yield page shows the net income and net redemption yield at a range of constant rates, so the 40 per cent case can be read directly rather than converted from the 20 per cent column. The income calendar lays out the coupon payment dates those figures are built from, so the bill can be tied to the payments that produce it.

Read together they answer what the coupon pays and when, and what it keeps at the higher rate. The allowance then adjusts the kept figure for a reader who has not used it elsewhere.

Background, not advice

This article works the higher-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 40 per cent rate and the £500 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.