Bond yield calculator
Running yield, yield to maturity and the yield after tax — solved against the dirty price you actually pay, and with the capital gains exemption on gilts priced, because it is what makes two bonds at the same quoted yield unequal.
Calculator
The price as quoted — 87.50 means £87.50 buys £100 of nominal value. This is the clean price, which excludes the interest that has built up since the last coupon; the calculator adds that back to get the price you actually pay.
The annual coupon as a percentage of nominal, which is the number in the bond’s name — a 0.25% gilt pays 25p a year on every £100 nominal, whatever the price. It is not the yield, and on a bond trading well away from par it is nothing like it.
From today to the redemption date. A fraction is the ordinary case rather than an edge one — a bond is rarely standing exactly on a coupon date — and the fractional part is what produces the accrued interest below.
Gilts pay twice a year. It matters more than it looks: it changes how the yield compounds and what fraction of a coupon has accrued.
Gilts always are, so leave this on for one. Whether a corporate bond is depends on that bond’s own terms — the qualifying corporate bond rules — which a price and a coupon cannot tell you. Turn it off and the after-tax figures below become an upper bound rather than an answer.
That is 10 coupons still to come, 0.0000 of accrued interest per £100 nominal, and a price of 87.5000 actually paid.
Salary, pension, rental profit — everything that is not interest or a dividend. Savings interest is stacked above it, so this is what decides which band the coupon meets.
Bank interest, other bond coupons, everything before this one. It is what places the next pound of interest in the bands — and while you are inside the starting rate for savings or the personal savings allowance, the next pound is free.
Savings interest is taxed at UK-wide rates wherever you live. Your other income is not, and in Scotland it is taxed at Scottish rates — which still moves which savings band the coupon lands in.
Everything here is per £100 of nominal value, which is how a bond is quoted. There is no field for how much you are buying because there does not need to be: a yield is a rate, and £1,000 nominal at this price yields exactly what £100 nominal does.
Conventional bonds only. Index-linked gilts, gilt strips, perpetuals, callable and convertible bonds, and anything that can be redeemed early all break the fixed schedule this page discounts. The starting rate for savings and the personal savings allowance are applied through the tax engine — currently £5,000 and up to £1,000 respectively — because a coupon is savings income and meets both before it meets a rate.
Every calculation runs in your browser. There is no application server and no database, so nothing you type is transmitted or stored. A share link is the exception: it carries your figures in the URL. What that means.
Running yield, yield to maturity, and what tax leaves of them
Redemption yield 2.98% a year
That is the single rate at which every remaining coupon and the pull up to £100 at redemption are worth the 87.50 you pay today. The running yield is 0.29% — the coupon over the price, which is what most platforms print beside a bond and which ignores the redemption date entirely.
The redemption figure above is an effective annual rate: it compounds the 1.4789% solved for each coupon period, so it is directly comparable with a savings account’s AER. A bond screen usually quotes the nominal convention instead — the periodic figure multiplied rather than compounded — which for this bond is 2.96%. Neither is wrong; quoting one while the reader assumes the other is.
The price you are quoted, and the price you pay
| Clean price, as quoted | 87.5000 |
|---|---|
| Accrued interest (0% of a coupon) | 0.0000 |
| Dirty price — what changes hands | 87.5000 |
A bond is quoted clean so that the price does not appear to sawtooth upwards between coupon dates and drop on each one. What actually changes hands is the dirty price: the clean price plus the interest that has built up since the last coupon, which the seller has earned and you are buying from them. The redemption yield is solved against the dirty price, because that is the money leaving your account. The running yield above is quoted on the clean price, which is the market convention and is defensible for the opposite reason — accrued interest comes straight back in the next coupon rather than being a cost of holding the bond.
| Coupons still to come (10 × 0.1250) | 1.25 |
|---|---|
| Capital return at redemption | 12.50 |
Those two are the whole of the return, undiscounted, and the split between them is what the tax section below is about — because in the UK they are taxed completely differently. This bond is trading below par, so part of the return arrives as the price pulling up to £100 rather than as interest.
What the yield is worth after tax
A coupon is savings income: it meets the starting rate for savings and the personal savings allowance before it meets any rate, and after that it is taxed like bank interest. Your next pound of interest is taxed at 40.00%, measured by running the tax calculation twice on £60,000 of other income and £500 of interest you already expect.
The capital return is not taxed at all, and that is the whole reason this page exists. Gilts are exempt from capital gains tax, so the pull up to £100 at redemption arrives whole while every coupon is taxed. The lower the coupon and the deeper the discount, the more of the return arrives in the exempt half — which is why a higher-rate taxpayer buying gilts usually buys low-coupon ones, and why comparing two gilts on their gross redemption yields alone is comparing the wrong number. The exemption runs both ways: a capital loss on a gilt is not allowable either, so a high-coupon gilt bought above par is taxed on the whole coupon and gets no relief for the fall back to par.
| Redemption yield | Effective a year | Nominal a year |
|---|---|---|
| Before tax | 2.98% | 2.96% |
| After tax | 2.87% | 2.85% |
To match this after tax, a savings account would have to pay 4.78% gross.
The gap between 2.98% gross and 2.87% after tax is 0.11% — far less than the 40.00% your next pound of interest is taxed at, because most of this bond’s return is not interest. The equivalent savings rate above is the figure to compare against an account, and it is the practical form of the exemption.
Another £64,640 of income of any kind takes you into the Additional rate band, after which the rate on your interest changes again. Held inside an ISA or a pension the coupon is not taxable either, at which point the gross figure applies whatever else you earn.
The same gross yield, at six different coupons
Every row below yields exactly 2.98% before tax, over the same 5 years. The price in each row is whatever that coupon would have to trade at to produce it. Nothing differs between them except how the return is split between taxable interest and exempt capital gain — and read the last column downwards.
| Coupon | Clean price | Capital return | Yield after tax |
|---|---|---|---|
| 0.25% | 87.50 | 12.50 | 2.87% |
| 1% | 90.96 | 9.04 | 2.55% |
| 2% | 95.58 | 4.42 | 2.15% |
| 4% | 104.81 | -4.81 | 1.41% |
| 6% | 114.04 | -14.04 | 0.74% |
| 8% | 123.28 | -23.28 | 0.13% |
2.74% a year separates the top row from the bottom one, on bonds the market prices at the same yield. The gross column would be identical down the whole table, which is why comparing two gilts on their quoted redemption yields is comparing the wrong number if you pay tax on the coupon. It is also why the low-coupon gilts trade a little richer than this table implies in real life: the market knows, and the tax advantage is partly priced in — partly, because the buyers it matters to are not the only buyers.
Six things a redemption yield does not tell you
It assumes every coupon is reinvested at the same yield
This is the assumption buried inside every redemption yield anywhere, including the ones on professional screens, and it is not an input you can change here or anywhere else — it is a property of what an internal rate of return is. You will actually receive the coupons in cash and reinvest them at whatever rates exist at the time, which will not be this one. The lower the coupon, the less of the answer depends on the assumption: on a zero-coupon bond there is nothing to reinvest and the figure is exact.
It assumes you hold to redemption, and that the issuer pays
Sell early and you get the price on the day, which has nothing to do with this figure — bond prices move inversely to yields, and a long bond moves a long way. The redemption amount also assumes the issuer pays. That is a reasonable assumption for a gilt and a commercial judgement for a corporate bond, and this page applies no credit assessment of any kind: it will price a default-bound bond at whatever yield its price implies, which is exactly why that yield is high.
It is a conventional bond redeeming at par, and many are not
Index-linked gilts are not modelled at all — their coupons and their redemption amount are uplifted by inflation, so a fixed schedule cannot describe them and every figure here would be wrong for one. Neither are gilt strips, which are taxed on an annual deemed disposal rather than on redemption; perpetuals, which never redeem; or callable and convertible bonds, where the issuer or the holder can change the schedule. Redemption is assumed to be at 100.
The tax is a marginal rate applied to a whole stream of coupons
The rate used is the tax on your next pound of interest, which is the right figure for deciding whether to buy — and it is applied unchanged to every coupon over the whole term, which assumes your income and the allowances stay where they are. Neither will. It also uses today’s rates for every future year, and the personal savings allowance is not a fixed figure: it depends on which band you end up in, so a bond that pushes you up a band shrinks it.
The accrued income scheme is not applied
When a bond is bought or sold between coupon dates, the accrued interest built into the price is treated as interest for the seller and relieved for the buyer, above a threshold on the nominal held. This page does not apply it: it taxes the whole of the first coupon, including the part you effectively paid for in the dirty price. The effect is small and it is against the reader, so the after-tax figures here are slightly pessimistic for anyone buying part-way through a coupon period.
Deeply discounted securities are a separate regime, and it is not here
A bond issued at a deep discount can have its redemption profit charged as income rather than as a capital gain, which would remove the advantage this page is about entirely. Gilts are outside that regime; a corporate bond may not be, and it turns on the terms it was issued under rather than on the price you paid. This calculator names no bond, no issuer and no broker, applies no credit view, and recommends nothing.
Worked example: two gilts at the same yield, and only one of them after tax
Two gilts redeeming on the same day, priced at the same 2.98% gross redemption yield, are not worth the same to a taxpayer: one returns 2.87% after tax and the other 0.13%. The market quotes the gross figure, so on a screen they look interchangeable. The difference is entirely in how the return is split between taxable interest and an exempt capital gain.
The first pays a 0.25% coupon and trades at 87.5. Almost the whole of its return is the 12.50 per £100 nominal that the price climbs on its way to redemption, and gilts are exempt from capital gains tax, so almost the whole of its return is untaxed. Its coupons over the remaining 5 years come to 1.25, and those are savings income.
The second pays 8% and has to trade at 123.28 to give the same gross yield — above par, so its capital line is a loss of 23.28 per £100 nominal. Its coupons come to 40.00, every penny of it taxable, and the exemption that shelters the first bond’s gain gives no relief for the second bond’s loss. The exemption runs both ways.
| Figure | 0.25% coupon | 8% coupon |
|---|---|---|
| Clean price | 87.50 | 123.28 |
| Coupons still to come | 1.25 | 40.00 |
| Capital return at redemption | 12.50 | -23.28 |
| Running yield | 0.29% | 6.49% |
| Redemption yield, before tax | 2.98% | 2.98% |
| Redemption yield, after tax | 2.87% | 0.13% |
| Savings rate needed to match it | 4.78% | 0.21% |
2.74% a year separates them, on two instruments the market has priced identically. The last row is the practical form of it: to beat the low-coupon gilt after tax, a savings account would have to pay 4.78% gross — against 2.98% for the bond itself. That gap is the exemption, and it is why higher-rate taxpayers hold gilts directly rather than holding cash.
The same gilt to somebody inside the savings allowances
None of this is worth anything to a reader whose interest is not being taxed. On £20,000 of income with no savings interest yet, the starting rate for savings and the £1,000 personal savings allowance cover the next pound between them, so the marginal rate is 0.00% and the same gilt returns 2.98% after tax — its gross yield, unchanged. For that reader a high-coupon gilt and a low-coupon one at the same gross yield really are interchangeable, and a savings account paying the same rate is too.
Which is the point worth taking away rather than a caveat on it: the advantage this page measures is a property of the buyer, not of the bond. It is worth most to somebody with a large taxable interest bill and nothing at all to somebody without one, and the calculator asks about your income rather than assuming either.
Methodology and sources
A bond has more than one yield, and the difference between them is not a matter of presentation. This calculator computes three — running, redemption, and redemption after tax — and the third is where a UK investor’s answer stops resembling the number on the screen.
Nothing here is projected forward, and the distinction is worth stating because discounting a stream of future cash flows over a term has the shape of a projection. Those cash flows are contractual: a coupon and a redemption amount written into the instrument, not a growth rate anybody assumed. No field on this page compounds a balance forward at a rate the reader typed, which is why the page carries a verification stamp and no not-a-forecast disclaimer. The one genuine assumption inside a redemption yield is set out below.
The cash flows, and where accrued interest comes from
periods = years to redemption × coupons a year (may be fractional)
n = ceil(periods) coupons still to come
first = periods − (n − 1) when the next one arrives
coupon times = first, first + 1, …, first + n − 1 the last one is at "periods"
accrued = coupon per period × (1 − first)
dirty price = clean price + accruedThe accrued interest is derived from the term rather than asked for, and that is deliberate: two fields could contradict each other, and a page that asked for both would have to decide which to believe. A bond 4.75 years from redemption paying half-yearly is 9.5 coupon periods out, so the next coupon is half a period away and half of one has accrued. Under the actual/actual (ICMA) convention gilts use, that same fraction is the days since the last coupon over the days in the coupon period — so a reader working from two dates arrives at the same number by a different route.
The two prices, and which yield is measured against which
running yield = annual coupon ÷ CLEAN price
redemption yield = the rate y at which
Σ coupon/(1+y)^t + 100/(1+y)^periods = DIRTY priceThe redemption yield is solved against the dirty price because that is the money leaving your account. The running yield is quoted on the clean price because that is the market convention, and it is defensible for the opposite reason: accrued interest comes straight back in the next coupon rather than being a cost of holding the bond.
The running yield ignores the redemption date entirely, which is why it can be nothing like the redemption yield on a bond trading away from par. On this calculator’s own figures they are 0.29% and 2.98%. Both are correct; only one of them describes the return.
The solve: bisection, and how far it converges
There is no closed form for a redemption yield, so it is solved numerically. The present value above is strictly decreasing in the yield for every yield above −100%: every cash flow is non-negative and each is divided by (1 + y) raised to a strictly positive power. A strictly monotonic function whose bracket endpoints straddle the target has exactly one root inside it, and bisection finds it unconditionally — no derivative, no starting guess, and no possibility of stepping into the region where (1 + y) is negative and a fractional power becomes NaN.
Newton–Raphson converges faster and is what a spreadsheet uses. It was rejected because its failure modes are silent: a bad starting point on a deep discount or a long-dated bond can step past −1, and a fractional power of a negative number is a quiet NaN in IEEE-754 rather than an error — one that would surface several frames later with the wrong thing blamed. There are at most a few dozen solves per keystroke, so speed is not the constraint.
bracket [-0.9999, 10] per coupon period
each step halves it
after k width = 10.9999 / 2^k
20 steps → 1.0e-5
40 steps → 1.0e-11
60 steps → 9.5e-18A double distinguishes about one part in 1e-16, so the answer is exact to the limit of the representation after roughly 60 iterations. The loop stops when the bracket is narrower than 1e-14 — four orders of magnitude below the precision any yield is displayed at — and is capped at 200 iterations regardless, because a loop that can only end on a tolerance can spin forever on a pathological input and one that can only end on a count does more work than it needs to on every ordinary one.
The solver is checked against three things a reader can verify without it. A bond priced at par yields its coupon exactly. A zero-coupon bond bought at half its redemption value over ten periods yields 2^(1/10) − 1, which is 7.1773% and is a closed form. And every solved yield is put back through the present value function and must reproduce the price it came from. Where no yield exists — a matured bond, a price of zero, or a price higher than the undiscounted cash flows could be worth — the solver returns nothing and the page says so, rather than reporting a bound as though it were an answer.
Two ways to turn a periodic yield into an annual one
effective = (1 + y)^n − 1 compounded; the basis a savings AER uses
nominal = y × n multiplied; what a bond screen quotesThey do not agree, and on a semi-annual bond at 5% they differ by 6 basis points — more than the spread a retail buyer is usually choosing between. The page leads on the effective figure because it is the only one comparable with a savings account without a conversion, and shows the nominal one beside it because that is the convention a screen will have quoted. This is the same decision app/investment-calculator makes about a growth rate: ask, or show both, rather than picking one quietly.
The tax, and the exemption that is the point of the page
The two halves of a bond’s return are taxed completely differently in the UK, and the page’s whole argument follows from that:
- The coupon is savings income. It is stacked above other income and below dividends, and it meets the starting rate for savings and the personal savings allowance before it meets any rate at all.
- The capital return on a gilt is exempt from capital gains tax (TCGA 1992 s.115), so the pull from a discounted price up to 100 arrives untaxed. The exemption runs both ways: a capital loss on a gilt is not allowable, so a high-coupon gilt bought above par is taxed on the whole coupon and gets no relief for the fall back to par.
The after-tax yield is therefore the same solve over a different schedule: the coupons are reduced by the reader’s marginal rate on savings interest and the redemption amount is left alone.
marginal rate = income tax(other income, interest + £100)
− income tax(other income, interest) ÷ £100
net yield = the rate y at which
Σ coupon × (1 − marginal rate)/(1+y)^t + 100/(1+y)^periods
= dirty priceThe rate is measured against the engine on the savings field, never read off Breakdown.marginalRate. That field is a forward difference on earned income — the engine says so — and it knows nothing about the starting rate for savings or the personal savings allowance, so on a page about a bond coupon it can report a positive rate for a reader whose next pound of interest is genuinely free. A £100 step is used rather than £1 because inside the personal allowance taper the surviving allowance is rounded up to a whole pound, so a £1 probe alternates between two rates.
Whether the exemption applies is an input. Gilts always qualify; whether a particular corporate bond does turns on the qualifying corporate bond rules and on that bond’s own terms, which a price and a coupon cannot reveal. Turned off, the page reports the same after-tax figure as an upper bound and says the capital element would be chargeable and is not priced here — computing it would need the size of the holding, the annual exempt amount and every other gain in the year, none of which this page asks for.
Rates and allowances
| Figure | 2025/26 | 2026/27 |
|---|---|---|
| Starting rate band for savings | £5,000 at 0.00% | £5,000 at 0.00% |
| Personal savings allowance — basic / higher / additional | £1,000 / £500 / £0 | £1,000 / £500 / £0 |
| Savings rates, in stacking order | Basic rate 20.00% from £0; Higher rate 40.00% from £37,700; Additional rate 45.00% from £125,140 | Basic rate 20.00% from £0; Higher rate 40.00% from £37,700; Additional rate 45.00% from £125,140 |
| Personal allowance | £12,570 | £12,570 |
| Other income — England, Wales and Northern Ireland | Basic rate 20.00% from £0; Higher rate 40.00% from £37,700; Additional rate 45.00% from £125,140 | Basic rate 20.00% from £0; Higher rate 40.00% from £37,700; Additional rate 45.00% from £125,140 |
| Other income — Scotland | Starter rate 19.00% from £0; Basic rate 20.00% from £2,827; Intermediate rate 21.00% from £14,921; Higher rate 42.00% from £31,092; Advanced rate 45.00% from £62,430; Top rate 48.00% from £125,140 | Starter rate 19.00% from £0; Basic rate 20.00% from £3,967; Intermediate rate 21.00% from £16,956; Higher rate 42.00% from £31,092; Advanced rate 45.00% from £62,430; Top rate 48.00% from £125,140 |
Savings rates are UK-wide and are not devolved. Scottish rates apply to a reader’s other income only, and that income still decides which savings band the coupon lands in. The personal savings allowance is not a fixed figure — it is £1,000 at the basic rate and nothing at the additional rate — so a bond large enough to move a reader up a band shrinks the allowance that was sheltering it.
Sources
- legislation.gov.uk — TCGA 1992 s.115, gilt-edged securities and qualifying corporate bondsThe exemption itself: no chargeable gain accrues on a disposal of gilt-edged securities or qualifying corporate bonds — which also means no allowable loss. It is the statutory basis for everything in the tax section of this page.
- gov.uk — Tax on savings interestThat a bond coupon is savings income, and the two allowances it meets first: the starting rate for savings and the personal savings allowance, whose size depends on the band the taxpayer ends up in.
- gov.uk — Income tax rates and allowances: current and pastThe personal allowance, its taper, and the band thresholds the coupon is stacked against.
- gov.scot — Scottish income tax rates and bandsSavings rates are UK-wide, so Scottish rates apply to a reader’s other income only — but that income still decides which savings band the coupon lands in.
- HMRC Savings and Investment Manual — SAIM2440, the accrued income schemeThe treatment of accrued interest built into a bond’s price when it is bought or sold between coupon dates. Deliberately not applied here, and the omission is stated beside the answer.
The rates, thresholds and allowances used by this calculator were verified against gov.uk on . That covers the published rates, thresholds and allowances this page calculates with. It does not verify any figure the page produces for you: that is arithmetic on verified inputs. Parts of the engine behind it are checked against HMRC’s own published worked examples, which tests the method on a small number of scenarios rather than your answer, and most of the test suite derives its expected values by hand. That check was carried out automatically and no named person has signed it off yet.
| Figures covered | Verified on | Verified by | Human sign-off |
|---|---|---|---|
| 2025-26 | 2026-08-12 | Automated verification (Claude Opus 5) | not yet signed off |
| 2026-27 | 2026-08-12 | Automated verification (Claude Opus 5) | not yet signed off |
| 2020-21 to 2024-25 — pension annual allowance only | 2026-08-12 | Automated verification (Claude Opus 5) | not yet signed off |
| 2025-26 and 2026-27 — share identification window only | 2026-08-13 | Automated verification (Claude Opus 5) | not yet signed off |
| 2025-26 and 2026-27 — pension relief at source only | 2026-08-13 | Automated verification (Claude Opus 5) | not yet signed off |
| 2025-26 and 2026-27 — inheritance tax only | 2026-08-13 | Automated verification (Claude Opus 5) | not yet signed off |
| 2025-26 and 2026-27 — family tax, LISA and pension-access additions | 2026-08-13 | Automated verification (Codex) | not yet signed off |
| 2025-26 and 2026-27 — student loan deductions only | 2026-08-18 | Automated verification (Claude Opus 5) | not yet signed off |
| 2025-26 and 2026-27 — property acquisition tax only | 2026-08-18 | Automated verification (Claude Opus 5) | not yet signed off |
| 2025-26 and 2026-27 — automatic enrolment only | 2026-08-18 | Automated verification (Claude Opus 5) | not yet signed off |
| 2025-26 and 2026-27 — State Pension age and rates only | 2026-08-18 | Automated verification (Claude Opus 5) | not yet signed off |
The log covers the rules directory, not only this calculator. 8 rows are deliberately narrow — 2020-21 to 2024-25 — pension annual allowance only; 2025-26 and 2026-27 — share identification window only; 2025-26 and 2026-27 — pension relief at source only; 2025-26 and 2026-27 — inheritance tax only; 2025-26 and 2026-27 — student loan deductions only; 2025-26 and 2026-27 — property acquisition tax only; 2025-26 and 2026-27 — automatic enrolment only; 2025-26 and 2026-27 — State Pension age and rates only — and they verify the figures named there and nothing else. Those tax years are not modelled by any calculator on this site: the years this page can compute are the ones its tax-year selector offers, and no others.
A verification goes stale the moment one of its sources is updated past the date above. If a source below carries a later date than this stamp, trust the source.
Rates, thresholds and allowances on this page are taken from material published by HM Revenue & Customs and the Scottish Government. Contains public sector information licensed under the Open Government Licence v3.0.
Six things this calculation does not model
- It assumes every coupon is reinvested at the yield itself. That is a property of what an internal rate of return is rather than a shortcut taken here, and it is true of every redemption yield on every screen. The lower the coupon, the less of the answer depends on it; on a zero-coupon bond the figure is exact.
- It assumes the bond is held to redemption and that the issuer pays. No credit assessment of any kind is applied — a bond heading for default is priced at whatever yield its price implies, which is why that yield is high.
- Conventional bonds redeeming at 100 only. Index-linked gilts have coupons and a redemption amount uplifted by inflation and cannot be described by a fixed schedule at all. Gilt strips are taxed on an annual deemed disposal rather than on redemption. Perpetuals never redeem; callable and convertible bonds let somebody change the schedule.
- The accrued income scheme is not applied. Accrued interest built into the price is treated as interest for the seller and relieved for the buyer above a threshold on the nominal held; this page taxes the whole of the first coupon instead. The effect is small and it is against the reader, so the after-tax figures are slightly pessimistic for anyone buying part-way through a coupon period.
- Deeply discounted securities are a separate regime. A bond issued at a deep discount can have its redemption profit charged as income rather than as a capital gain, which would remove the advantage this page is about. Gilts are outside that regime; a corporate bond may not be, and it turns on the terms it was issued under.
- One marginal rate, applied to every future coupon. The rate is measured on the next pound of interest at today’s income and today’s rates, and then used unchanged for the whole term. Income moves, allowances move, and rates move.
Bond yield and gilt tax questions
- How do you calculate the yield on a bond?
There are two answers and they are different numbers. The running yield is the annual coupon divided by the price — simple, and it ignores the redemption date entirely, so it says nothing about the capital you get back. The redemption yield, or yield to maturity, is the single rate at which every remaining coupon and the redemption amount are worth exactly what you pay today. That has no closed form and has to be solved numerically. On the calculator's own figures the running yield is 0.29% and the redemption yield 2.98%, because the bond trades well below par and almost all of its return is the pull back up to it.
- What is the difference between the clean price and the dirty price?
The clean price is what a bond is quoted at. The dirty price is what changes hands: the clean price plus the interest that has accrued since the last coupon, which the seller has earned and the buyer is paying them for. Bonds are quoted clean so that the price does not appear to climb steadily between coupon dates and drop on each one, which would make a price chart mostly about the calendar. The redemption yield has to be solved against the dirty price, because that is the money actually leaving your account — and the running yield is conventionally quoted on the clean one, because accrued interest comes straight back in the next coupon rather than being a cost of holding the bond.
- Do I pay capital gains tax on gilts?
No. Gilts are exempt from capital gains tax, so a gilt bought below par and held to redemption delivers the whole of the pull up to par untaxed. The coupon is a different matter: it is savings income, so it meets the starting rate for savings and the personal savings allowance and is then taxed like bank interest. That split is the reason low-coupon gilts trading at a discount are so widely held by higher-rate taxpayers — most of the return arrives in the exempt half. The exemption runs both ways, and this is the part usually left out: a capital loss on a gilt is not allowable either, so a high-coupon gilt bought above par is taxed on the whole coupon and gets no relief for the fall back to par.
- Why do two gilts with the same yield give different returns after tax?
Because the gross redemption yield does not say how the return is split. Two gilts redeeming on the same day at the same gross yield have the same total return and a completely different mix: a low-coupon one delivers most of it as an exempt capital gain, and a high-coupon one delivers most of it as taxable interest. On the calculator's own figures, 2.98% gross becomes 2.87% after tax on a 0.25% coupon and 0.13% on a 8% one, for the same taxpayer. The market prices them the same because the gross figure is what is quoted, and the tax advantage is only partly priced in — the buyers it matters to are not the only buyers.
- Is a gilt better than a savings account?
It depends entirely on whether your interest is being taxed, which is a fact about you rather than about the gilt. The calculator reports the gross savings rate an account would have to pay to match the bond after tax: on its own figures that is 4.78% against a bond yielding 2.98%. For somebody still inside the starting rate for savings and the personal savings allowance the two come to the same thing, because nothing is being taxed either way. What a savings account has that a gilt does not is certainty of value: a gilt held to redemption pays exactly what this page says, and a gilt sold early pays whatever the market offers on the day.
- What is the difference between an effective and a nominal redemption yield?
An effective annual yield compounds the periodic figure — a gilt's half-yearly yield twice — and is directly comparable with a savings account's AER. A nominal one multiplies instead, and is the convention a bond screen usually quotes for a semi-annual bond. The effective figure is always the higher of the two for a positive yield, and on the calculator's own bond they are 2.98% and 2.96%. Neither is wrong. Quoting one while the reader assumes the other is, which is why this page shows both and labels them.
- Does a yield to maturity assume I reinvest the coupons?
Yes, at the yield itself, and that is true of every redemption yield anywhere rather than a shortcut taken here. It is a property of what an internal rate of return is: the figure that makes the discounted cash flows equal the price is also the rate at which the cash flows would have to be reinvested for the total to work out. In practice you receive the coupons in cash and reinvest them at whatever rates exist at the time, which will not be this one. The lower the coupon, the less of the answer depends on the assumption — on a zero-coupon bond there is nothing to reinvest and the figure is exact.
- How is bond interest taxed in the UK?
A coupon is savings income, so it is taxed after your other income but before dividends in the statutory stacking order, and it meets two allowances first. The starting rate for savings is a band of £5,000 taxed at nothing, reduced pound for pound by your non-savings taxable income, so it is gone for most people with a salary. The personal savings allowance is £1,000 for a basic-rate taxpayer, £500 at the higher rate, and nothing at the additional rate — so it shrinks exactly as your income grows. Above those, interest is taxed at your rate. The calculator measures the rate on your next pound rather than quoting one.
- Does this calculator work for index-linked gilts?
No, and it should not be used for one. An index-linked gilt has its coupons and its redemption amount uplifted by inflation, so its cash flows are not fixed and a fixed schedule cannot describe them — every figure here would be wrong. Gilt strips are outside it too: they are taxed on an annual deemed disposal rather than on redemption, which is a completely different regime from the exemption this page is about. Perpetuals never redeem, and callable and convertible bonds let the issuer or the holder change the schedule. What this page prices is a conventional bond with fixed coupons redeeming at 100.
- Does this calculator recommend any bonds?
No. It names no bond, no issuer and no broker, and it never will. It takes a price, a coupon and a date that you supply, discounts the cash flows they imply, and shows the working. In particular it applies no credit assessment of any kind: it will price a bond heading for default at whatever yield its price implies, and a very high yield on a corporate bond is the market saying something about the issuer rather than an opportunity the market has missed. This site publishes information, not advice.