Methodology

Every figure on this site comes from the formulas below. They are set out so you can check them, and so you can see where a number stops being a calculation and starts being an assumption.

Cashflows

A conventional gilt pays a fixed coupon twice a year and repays £100 per £100 nominal at redemption. Payment dates fall on the day of the month the gilt redeems, and six months before.

coupon payment = annual coupon rate ÷ 2 (per £100 nominal)
final payment = coupon payment + 100

Dates are generated backwards from redemption rather than forwards from issue. The redemption leg is fixed, whereas the first coupon after issue is often a short or long stub — counting forwards would drift off the payment day. Where six months before a month-end lands on a day that does not exist, the date clamps to the last day of that month: a gilt redeeming 31 August also pays on 28 February, or 29 in a leap year.

Accrued interest and the dirty price

Coupons are paid twice a year, but interest accrues daily. Between payment dates a buyer owes the seller the interest earned so far.

Accrued interest

Gilts accrue on an actual/actual (ICMA) basis: actual days elapsed over actual days in the coupon period, with no month-length convention applied.

accrued = (coupon ÷ 2) × days since last coupon ÷ days in period

The ex-dividend window

A gilt goes ex-dividend seven business days before a coupon is paid. Buy inside that window and the coming coupon still goes to the seller — so accrued interest turns negative, and the buyer is compensated for the days they will hold without being paid for them.

ex-dividend: accrued = −(coupon ÷ 2) × days to next coupon ÷ days in period

Business days here mean weekdays excluding England bank holidays, so the window stretches across Christmas and Easter.

Clean and dirty

The clean price is what is quoted. The dirty price is what settles, and what the yield is calculated from.

dirty price = clean price + accrued interest

Gross redemption yield

The single rate that discounts every remaining cashflow back to the dirty price — the internal rate of return of holding to redemption. It is quoted on a semi-annual basis, as UK gilts conventionally are.

dirty price = Σ cashflow_i ÷ (1 + y ÷ 2)^t_i

where t_i is time to payment i measured in coupon periods

There is no closed-form solution, so the rate is found numerically by bisection. Inside the ex-dividend window the next coupon is excluded, since the buyer will not receive it. The yield assumes coupons are reinvested at the same rate, which is an assumption rather than a fact — if rates fall, the realised return will be lower.

Tax: net and gross equivalent yield

This is where gilts differ from most investments, and where a headline yield can mislead.

Gilt coupons are taxable as savings income, but gilts are exempt from capital gains tax. A gilt bought below £100 and held to redemption produces a gain that is not taxed at all. So the after-tax return is not the gross yield reduced by your tax rate — only the coupon leg is reduced.

Net redemption yield

dirty price = Σ [ coupon_i × (1 − tax rate) + redemption_i ] ÷ (1 + y_net ÷ 2)^t_i

The same solver, with coupons reduced by the selected rate and the redemption amount left whole.

Gross equivalent yield

The rate a fully taxable account — a savings account, say — would have to pay to leave you in the same position after tax.

gross equivalent = net yield ÷ (1 − tax rate)

For a low-coupon gilt trading below par it comes out above the gross yield, because most of the return escapes tax. For a high-coupon gilt near par it comes out below, because almost all of the return is taxable coupon. That reversal is the comparison worth making, and it changes which gilt suits which taxpayer.

Rates used are the UK savings income rates: 20% basic, 40% higher, 45% additional.

What is not modelled

Index-linked gilts. Their coupons and redemption are uprated in line with RPI, so the cashflows are not known in advance. Discounting the unuprated amounts would give a real yield that is not comparable with a conventional gilt or a savings rate, so no yield is shown for them.
Gilt strips. Stripped coupons and principal are deeply discounted securities and are taxed as income on the gain, not exempt from capital gains tax. The tax treatment above does not apply to them.
The Personal Savings Allowance. £1,000 of savings income is tax-free for a basic rate taxpayer and £500 for a higher rate taxpayer. That depends on your total income rather than on any one gilt, so it is not applied here — your actual net yield may be higher than shown.
Dealing costs and spreads. Commission, and the difference between the price you can buy at and the price quoted, both reduce the return and are not included.
Holding to redemption. Every yield here assumes you hold until the gilt repays. Sell earlier and you get the market price on the day, which may be more or less than you paid.

Prices

Calculations use the most recent closing price, and the date that price refers to is shown alongside it. These are end-of-day figures, not live prices — your broker’s price when you deal will differ.

A word on what this is not

Publishing the formulas does not make the output advice. These are calculations applied to public data, with no view taken on whether any gilt suits you. More in the help page.