Part 1
What are Premium Bonds and how do they work?
Premium Bonds are an asset that forms a part of someone’s estate, just like a bank account or a savings account. Unlike bank accounts, all Premium Bonds are held with the government under the National Savings and Investments (NS&I) agency.
Most Premium Bonds accounts will hold between £25 and £50,000, with the majority falling on the lower end of the scale. No individual can legally own more than £50,000 of Premium Bonds.
Premium Bonds work in a similar way to a lottery draw. Each £1 held as a Premium Bond is given a unique number which is entered into a prize draw. If that number is drawn, the person holding the Bond will win a cash prize.
Prizes can be won in increments from £25 to £1,000,000, with £25 being the most common and £1,000,000 being extremely rare. These winnings are not taxed when won but are included in the person’s estate after they die for Inheritance Tax purposes. Therefore, if you are the executor in charge of administering someone’s estate, you will need to check whether they held Premium Bonds before you calculate the net value of the estate for the Inheritance Tax payment.