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Index-linked gilts are a type of bond issued by the UK government that offer investors protection against inflation (the US equivalents are called TIPS). With longer dated paper currently offering real yields of around 2.3%, vs. negative 2.5% only four years ago, they certainly deserve private investors’ consideration.
Index-linked gilts are designed to ensure that the purchasing power of savings is maintained over time, making them an attractive option for those concerned about sticky inflation. In particular, investors with inflation-sensitive expenses or liabilities, such as retirees funding long-term living costs, may benefit from their structure. They are however not straightforward to trade, nor do they always behave as they might be expected to.
The market is large – over £600bn – and there are 35 issues outstanding, one maturing almost every year to 2058 and a few beyond that. Historically, the main investors in “linkers” have been insurance companies and pension funds. For the technically minded, the Debt Management Office offers extensive information on how they operate.
Definition: Index-linked gilts are bonds issued by the UK government that are linked to the Retail Prices Index (RPI). Except that as of February 2030 they will be aligned with CPI, which excludes mortgage costs and has historically been lower than RPI.
Interest Payments: The interest payments (coupons) on these gilts are adjusted in line with inflation, meaning they increase as inflation rises, comparing the latest RPI against the base RPI used when the gilt was first issued. The coupons are paid semi-annually. All issues since 2005 have adjusted on the basis of a three month lag. The coupons are typically low and represent a small part of the overall return, as this list shows.
Real Yields: The real yield is calculated as the implied yield to maturity in excess of inflation. This is now positive across the market. Were it to go negative, the bond prices would rise.
Principal Repayment: At maturity, the principal amount repaid is also adjusted for inflation on the same basis, ensuring that the value of the investment is preserved. The adjustment can therefore be calculated on a continuing basis so that the current inflation-adjusted value of the principal is known.
Positive Real Returns: Although the long-term real return on inflation-linked gilts – historically around 2.5% per annum – has been lower than that of equities (for example, the FTSE All-Share has delivered approximately 3.5% per annum after inflation over the past two decades, before tax), their appeal lies in the stability and predictability of those returns. As a source of anchored, inflation-protected income, inflation-linked gilts can provide valuable diversification within a portfolio, particularly when balanced against the volatility and drawdown risk inherent in equity markets.
CGT Status: Gilts have been exempt from capital gains tax since 1986 – though of course this could change. Only the coupon is taxed, and the coupons are often a small part of the return.
Changing Interest Rates: Like conventional gilts, inflation-linked bonds are sensitive to changes in interest rates – higher rates generally translate into lower prices. However, this effect can be partially offset if rising rates coincide with higher inflation expectations, since the inflation adjustment to principal and coupons increases the bond’s future cash flows in real terms.
A real example: Take the UK Treasury 0.125% Index-Linked 2056 (TR56), issued on 30 November 2016 and maturing on 22 November 2056. Its clean price peaked at around £244 in November 2021 but has since declined to £51.13. On a dirty price basis (including accrued inflation uplift), the bond fell from £285 to approximately £78.50, representing a substantial economic loss for holders. However, this sharp price decline has pushed the real yield up to 2.53%, compared with roughly –2.5% at its peak price. In other words, the fall reflects not only rising nominal rates but also the repricing of inflation expectations and the real yield curve.
Is this the same for all maturities?: Not entirely. Shorter-dated index-linked gilts tend to be more influenced by inflation expectations than by interest rate changes. As a result, some shorter maturities have actually risen in price as near-term inflation assumptions have increased – the inflation effect more than compensating for the rise in nominal yields. Conversely, long-dated issues like the TR56 are more sensitive to real interest rates, and therefore exhibit greater price volatility when market rates move.
The mystery of Clean and Dirty Pricing: Like conventional gilts, most inflation-linked gilts are quoted on a clean price basis – that is, excluding accrued interest. For example, if you purchase a 5% conventional gilt just before its semi-annual coupon date, you will pay an additional 2.5% of accrued interest on top of the quoted price, which compensates the seller for interest earned during the period. Thus, while the clean price may be £100, the dirty price (the amount actually paid) would be £102.50. You would then receive the full coupon payment when due, restoring economic parity. For linkers, the calculation is more complex. In addition to accrued interest, buyers must also pay for the inflation uplift that has accrued since the bond’s issue date. This adjustment can be substantial, particularly for bonds that have been outstanding for several years during periods of high inflation – in some cases, the inflation factor alone can exceed the quoted clean price.
What does this look like?: Consider the UK Treasury 0.125% Index-Linked 2028 (T28), issued in June 2018 and maturing on 10 August 2028. The bond currently trades at a clean price of £98.80, but since issuance the RPI uplift factor has risen to 1.45574. As a result, the dirty price – i.e. the amount an investor would actually pay – is approximately £143.80, including around £0.20 per £100 nominal in accrued interest.
Why the change from negative real yields?: For much of the past decade, inflation-linked gilts traded at negative real yields due to heavy demand from defined benefit pension schemes and insurance companies seeking to hedge inflation-linked liabilities. These institutions were willing to accept sub-inflation returns in exchange for the protection such assets provided. However, as the defined benefit sector has contracted and many schemes have moved into surplus or buy-out positions, structural demand for linkers has diminished significantly. This change, alongside higher policy rates and improved fiscal credibility, has contributed to the sharp rise in real yields across the linker curve.
Laddering: Given the relatively regular pattern of index-linked gilt maturities, it is feasible to construct a laddered portfolio designed to provide a predictable, inflation-protected income stream – effectively creating an annuity-like profile. This approach mirrors how insurance companies structure their portfolios to match long-term annuity liabilities. While the low coupon structure of linkers may limit their appeal in taxable accounts, they can offer attractive characteristics compared with – or as a complement to – a conventional gilt ladder. Conversely, higher-coupon conventional bonds may be more tax-efficient when held within ISAs or SIPPs.
Deferred Ladder: A ladder of inflation-linked gilts can also serve as a deferred income strategy. For instance, an investor planning for retirement could structure maturities so that the first rung of the ladder – the initial bond maturity – aligns with their target retirement year, thereby securing an inflation-adjusted cash flow profile for the ensuing years.
Lower Initial Yields: Index-linked gilts typically offer lower nominal starting yields than conventional gilts. As a result, they provide less immediate income and have limited compounding potential. However, this structure also means reduced reinvestment risk, since a smaller proportion of total returns depends on the reinvestment of coupons.
Interest Rate Risk: Like all long-duration bonds, linkers remain sensitive to changes in real interest rates. A further rise in rates would likely depress prices, as seen during the sharp market adjustment of 2022. Conversely, a normalisation or decline in yields could result in capital gains. The longer the maturity and lower the coupon, the greater the bond’s duration and the more pronounced this effect becomes.
Inflation Risk: If inflation turns out lower than expected, the returns of linkers may lag that of other investments. Also, while designed to protect against rising prices, there are other ways to hedge against inflation: equities for example can offer natural inflation hedges through earnings and dividend growth.
Opaque Pricing: As mentioned above, linkers are shown as clean prices which are of limited use – getting real (dirty) prices still requires phone calls or access to a professional tools such as a Bloomberg terminal (which LGB & Co maintains).
Changes in the Rules: The move to benchmarking against RPI rather than CPI is intended to work in the Treasury’s favour, though if housing costs declined the reverse would be true. A change to the Capital Gains Tax exemption on gilts – though not currently proposed – would negatively affect the after-tax attractiveness of linkers and other sterling bonds.
Index-linked gilts offer an effective means of protecting savings against inflation, particularly at a time when they are priced to deliver real returns that are historically attractive by the standards gilts market. By providing a reliable income stream that rises in line with inflation, they enable investors to preserve purchasing power and strengthen the long-term resilience of their portfolios. However, these instruments are not without complexity, and understanding their structure and pricing nuances requires careful analysis – though, in the current environment, the potential reward may justify the effort.
Transaction Manager
Alexia Rottet joined LGB in October 2025 as a Transaction Manager. Prior to LGB, she gained real estate experience by participating in the valuation of a property portfolio for A2immo.ch SA as a financial analyst, as well as working at Form Structural Design as an office manager. Alexia holds an MA in Entrepreneurship and Innovation and a BA in International Relations.
Assistant Relationship Manager
Ruby joined LGB in December 2024 as an Assistant Relationship Manager for our investing clients. Prior to LGB, Ruby worked at FHIRST, a start-up where she collaborated with the co-founders on revenue growth and improving client experiences. Ruby graduated with a First-Class degree in History from Durham University.
Finance Manager
Following a degree reading Chemistry at The Queen’s College, Oxford, Antonia trained to become a chartered accountant at a London-based audit firm. She then moved into the tax sector joining EY and completing the chartered tax adviser qualification. She then gained further experience working as a finance director within industry at a family office / hedge fund.
Programme size: £20m
Establishment Date: December 2017
Number of issues: 12
Sector: Marine tracking
Focus: Maritime surveillance and management
Programme size: £25m
Establishment Date: XX 2017
Number of issues: 20
Sector: Financial services
Focus: Loans and leasing
Associate Director
Omar joined LGB in February 2026 as an Associate Director in the Capital Markets team. He brings over five years of experience from NatWest, where he worked across the Leveraged Finance Origination and Portfolio Management teams. During this time, he supported a broad range of businesses from venture-backed to large-cap companies, with a primary focus on the mid-market. His experience was sector agnostic, and the majority of the companies he worked with were sponsor-backed, giving him extensive exposure to private equity-led transactions and capital structures. Omar holds a degree in Accounting and Finance from The London School of Economics & Political Science and is a Chartered Banker.
Adviser
Charles has played an important role in developing LGB & Co.’s investment approach by encouraging a focus on investing in businesses with strong IP or know-how with recurring revenue business models that can prosper throughout economic cycles. Charles brings over 30 years’ experience of investing in privately-owned and publicly-listed small and mid-market companies. He is a director of Larpent Newton & Co. and Hygea VCT plc. Charles qualified as a Chartered Accountant at Peat Marwick, now part of KPMG.
Adviser
Lisa has worked with LGB since 2015 in supporting the on-going cultural and organisational development of the firm, providing advice on strategic people matters. Since 2006, Lisa has been running her own consultancy and executive coaching business, People Possibilities Ltd. Her work is focused on supporting clients at an organisational, team and individual level to enable high performance,improve leadership capability and effect cultural and behavioural change. Previously Lisa has held senior HR leadership positions with Schroders, ABN AMRO and HSBC. Lisa graduated from the University of Birmingham with an honours degree in International Relations & French. She is a Fellow of the Chartered Institute of Personnel and Development (CIPD) and a qualified Executive Coach.
Chairman
Simon became non-executive Chairman of the Board of LGB & Co. with a focus on growth and strategic initiatives in December 2025. Simon has extensive experience in capital markets and wealth management. He previously ran the client and investment business of Heartwood and became Chief Executive in 2008. He led its well-regarded acquisition by Handelsbanken in 2013. Simon subsequently became NED and Chair of AIM-listed WH Ireland Group PLC. He was also asked to represent the wealth management sector on the FCA Smaller Business Practitioner Panel from 2013-2016.
Capital Markets Director
Fergus advises corporate clients looking to raise debt and equity capital. He is also responsible for the execution and ongoing management of LGB’s MTN Programmes. Fergus joined LGB in 2019 having started his career at Lloyds Banking Group on the graduate training programme, before moving to the Leveraged Finance division, where he focused on transactions with mid-market corporates and PE firms. Fergus holds an MSc in Petroleum Geology from the University of Aberdeen.
Associate Director
Megan joined LGB in 2021 as a Relationship Manager. She is responsible for all day-to-day transactions with investment clients and oversees the LGB Investments Platform and Deal Hub. Prior to LGB, Megan worked at Puma Investments, a tax-efficient investment provider, in the sales and investor services team. Megan graduated from the University of Bath with a Bachelor of Science degree in Psychology, and has obtained the CISI Level 4 Diploma in Investment Advice.
Investment Director
Ivan is LGB’s Investment Director: he is responsible for developing LGB’s investment proposition in the context of the broader market and economic developments. He regularly meets individual company management teams to seek out and monitor investment opportunities. Ivan has served as a senior adviser to the Equity Division of Société Générale, and was previously Managing Director in charge of equity sales for them in London. Earlier in his career, Ivan worked at Morgan Stanley, Lazards and Schroders. He has degrees in history from Cambridge University & London University, and an MBA from Cass Business School.
Managing Director
Simone joined LGB in 2012 and is responsible for LGB & Co.’s business with institutional investors, wealth managers and sophisticated private investors. Simone’s team provides access to a range of compelling investment opportunities with a particular emphasis on structuring laddered portfolios of fixed income. In addition, the team manages portfolios of clients who have entered into advisory agreements with LGB Investments, and advises the fund managers of the Guernsey-based LGB SME Private Debt Fund. Prior to joining LGB & Co., Simone worked in the institutional fixed income department of Citigroup Global Markets. She began her career at Citigroup Private Bank in Geneva. Simone graduated from the University of Lausanne with a degree in HEC, Business Administration. She is a Chartered Member of the Chartered Institute for Securities & Investments and a Director of LGB.
CEO
Cedric was appointed CEO in July 2022 after a period of 18 months as a COO. Cedric spent 15 years working on the energy and commodities sales and trading desks for global banks (BNP Paribas, BAML and MUFG). He gained extensive international exposure, being based in London and Singapore and covering transactions in all geographic regions. Cedric graduated from Global Executive MBA at INSEAD in 2018 and started working in the capital markets space for growth-stage companies. He is also a director of LGB.
Managing Director, Capital Markets
Andrew founded LGB & Co. in 2005 and is managing the Capital Markets team. He has a particular focus on the development of strategic relationships with corporate clients and business partners. Prior to founding LGB & Co., Andrew was a Managing Director at Citigroup Global Markets, where he was responsible for its fixed-income business with private banks and retail institutions. Earlier in his career Andrew worked at Schroders in London and Tokyo. Andrew graduated from Oxford University with a degree in Modern History. He is a chartered member of the Chartered Institute for Securities & Investment.