What happens to Premium Bonds after death?

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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.

Part 2

What happens to Premium Bonds when the owner dies?

Premium Bonds are not an asset that can be passed on to a beneficiary in the same way that funds from bank accounts and savings accounts can; they cannot simply be inherited or transferred to someone else’s name.

Instead, there are two options available to you if you are administering someone’s estate and need to deal with their Premium Bonds. The first is to sell them during the probate process. If you do this, the funds earned from the sale will become a part of the estate and will be inherited by the beneficiaries when estate administration is complete. This is the quickest way for the beneficiaries to inherit money from Premium Bonds.

The other option is to leave them as they are for the time being. Premium Bonds can be held by NS&I for 12 months after death. During this time, they are still eligible for cash prizes. After 12 months have passed, the executor of the estate or a nominated beneficiary can contact NS&I to claim the prizes and cash out the Bonds. This delays the inheritance of funds, but it could lead to more money overall. As the executor, you should communicate with the beneficiaries who will be inheriting the funds from the estate to determine which option is best for their personal circumstances.

Part 3

Is Probate required to deal with Premium Bonds?

Whether or not probate is required to cash in Premium Bonds depends on how much the deceased owned. Just like banks, NS&I has a limit on how much money they can release without needing to see a grant of representation. While the limit varies for banks and can extend to £50,000, the limit for NS&I is always £5,000. If the deceased owned more than £5,000 in Premium Bonds, a grant of probate or a grant of letters of administration will be required.

This £5,000 limit includes any account held with NS&I by one person. If your loved one had £2,500 in Premium Bonds and £2,500 in Savings Certificates, for example, you will still need a grant of representation as the net value is £5,000.