A Premium Bond is an investment product held with the government by National Savings and Investment (NS&I). The government pays interest on these Bonds, and this interest is distributed by a lottery in a monthly prize draw. A cash prize can be anywhere between £25 and £1 million and is free of tax. Prizes are either paid straight into the individual’s bank account, by cheque through the post, or invested back into more Bonds.
Unlike most other assets, Premium Bonds cannot simply be passed on to beneficiaries of the estate, as they cannot be transferred into someone else’s name. When administering someone’s estate and dealing with Premium Bonds, there are two main options available to the Executor(s):
• Claim the Premium Bonds immediately
- they can be repaid as part of the estate administration process, and the funds from this sale will be included as part of the total estate value for the beneficiaries. In this case, the Bonds will only be eligible for prize draws in the month that they are claimed.
• Cash them out later
NS&I will hold the Premium Bonds for 12 months after the death of the owner, during which time they are eligible for the prize draw. After this period, the Executor can claim any prizes won during this time, as well as the face value of the Bonds
It’s important to consider that although the winnings are not taxable when won, they are included in the estate for the purposes of Inheritance Tax (if applicable). Additionally, probate is more than likely required when managing Premium Bonds, as the NS&I threshold is only £5,000.