Gilts

A gilt is a loan to the Government. You lend HM Treasury £100 for each unit, it pays you interest (the coupon) every week out of the Treasury balance, and it pays the £100 back at the end.

Buy them when they are issued, from a Stocks and Shares ISA (tax free) or a General Investment Account (the interest counts as savings interest for tax), or buy and sell them later on each gilt's market. Banks and funds hold them too. Gains on gilts are free of capital gains tax.

The quoted price is what the coupons still to come and the £100 at the end are worth if lenders want the Bank Rate (2.5%) plus a little for lending longer (0.25 points for every 90 days, at most 1 point), and 1 point more while the Treasury owes the gilt money it failed to pay. A coupon above that yield means a price above £100. When the Bank Rate rises, gilt prices fall.