Dealing with Premium Bonds during Probate
18 September 2019
If someone owned Premium Bonds at the time of their death, then these will be included in their Estate and, as such, will need to be dealt with as part of the Probate process. We explain what Premium Bonds are, how they work and what happens to them after the owner's death.
What Are Premium Bonds?
Premium Bonds are a commonly held asset that often have to be dealt with as part of a deceased person's Estate. Premium Bonds are administered by National Savings and Investments (NS&I) which is a government agency that offers savings and investment accounts.
An individual can hold a maximum of £50,000 in Premium Bonds, but often a small amount such as £10 or £50 is held if the Bonds were bought several years ago. The minimum amount that can be purchased now is £25.
How Do Premium Bonds Work?
Premium Bonds do not accrue interest like a bank account or investment, however they are entered into a 'prize draw' each month similar to a lottery. If your Bond number is drawn then you will receive a prize.
The prizes come in increments of £25, £50, £100, £500, £1000, £5,000, £10,000, £25,000, £50,000, £100,000 and £1,000,000. Each £1 invested in Premium Bonds is given a unique Bond number which has an equal chance of winning a prize, so the more Bonds owned means the higher the chance of winning a prize.
The winning numbers are drawn by a random number generator and the most common prize amount won is £25. No income tax or Capital Gains Tax is payable on the prizes won on Premium Bonds, however the value of the Premium Bonds owned will be included in a deceased person's Estate for Inheritance Tax purposes.
What Happens to Premium Bonds after Death?
There are a couple of options when dealing with Premium Bonds after the owner's death. One option is that the Premium Bonds can be 'encashed' (sold) during the Estate administration and the cash funds paid out to the beneficiaries of the Estate. Alternatively, they can be kept in the prize draw for up to a year after the date of death, and on the anniversary of the death the Bonds will be paid out.
Premium Bonds cannot be transferred directly into a Beneficiary's name permanently. So if a Beneficiary wanted to keep the Premium Bonds they would have to be cashed in, then the Beneficiary would need to buy the equivalent amount of Bonds in their own name.
The Bonds are still eligible for prizes during the 12 month period after the date of death. Any prizes won whilst the Bonds are in the prize draw after death can be claimed by a nominated Beneficiary or the Executor of the Estate. Prizes can either be sent by cheque or paid directly into a person's bank account.
Is Probate Needed for Premium Bonds?
NS&I will require a Grant of Representation when the total value of the assets held with them exceeds £5,000. This relates to all the assets held with NS&I, so if the Deceased held another account with them – such as Savings Certificates – as well as Premium Bonds, and the total combined value is over the £5,000 threshold, then Probate will be needed to deal with the assets. This threshold is somewhat low compared to other bank limits for Probate, which can be up to £50,000.
Premium bonds cannot be held jointly with another person so cannot pass automatically by survivorship. As such if the total amount held with NS&I is over £5,000 then the Executor or Administrator will need to apply for a Grant of Representation to deal with the Bonds.