What happens to Premium Bonds after death?

• After death, Premium Bonds form part of the value of the estate for Inheritance Tax purposes and might be frozen until probate is granted. 
• They can remain eligible for prizes for up to 12 months after death, and can only be cashed out by executors.
• Provira’s Estate Advance gives executors access to up to 50% of the estate’s value to cover estate expenses while this money is tied up.

After death, Premium Bonds pass to the estate. NS&I, the bank that holds them, stops new bond purchases and freezes the account.

Premium Bonds cannot be transferred to another named person. They must be cashed out.

NS&I commonly require a Grant of Probate in order to release holdings valued at more than £5,000. This means this cash remains tied up throughout the probate process.

For holdings under this amount, they can usually be cashed out sooner.

Bonds that remain in the deceased’s account are still eligible for prizes for up to 12 months after the date of death. Beyond this point, they’re frozen until the executor cashes them out or probate is complete, whichever happens first.

Having estate assets sitting there but unable to be released can be very frustrating.

Especially when they push up the value of the estate, increasing how much is exposed to Inheritance Tax.

At Provira, we help families dealing with these frustrations every day. 

Our Estate Advance helps estates struggling to cover an Inheritance Tax bill by giving executors access to up to 50% of the net value of an estate within days.

A dedicated underwriter will walk you through the loan process from start to finish, during which:

• You’ll only pay simple interest, not compound interest, saving you money in the long run
• You won’t be charged any early repayment fees if everything wraps up sooner than expected
• You won’t need to provide any monthly instalments, we’re repaid directly from the estate once funds are released
• You’ll face no personal liability or credit checks, the loan is secured entirely against the estate.

To get started, reach out to us today.

What are Premium Bonds?

Premium Bonds are a savings product from the National Savings and Investments (NS&I) bank, a non-ministerial government department in the UK backed by the HM Treasury.

Instead of earning interest, the money put in is entered into a monthly prize draw to win tax-free prizes. Holdings run from £25 up to a maximum of £50,000 per person. The value of the prizes range from £25 to £1 million.

This means, while the face value of the bonds will never change, they still count towards the total value of the estate for Inheritance Tax purposes, and any subsequent prizes do too. 

Their value could be enough to shift an estate’s value into the taxable range after death.

This is a key fact to consider when planning your estate in order to reduce your Inheritance Tax exposure.

What happens to Premium Bonds when the holder dies?

Once the death is reported to NS&I, they’ll stop new bond purchases and freeze the deceased’s account. If the bonds aren’t cashed out, they’re still eligible for monthly prizes for up to 12 months.

Any prizes won during this grace period are treated as estate income and are not included in the estate value for IHT purposes. 

An executor has two options when the Premium Bonds holder dies:

1. Keep bonds in NS&I for the full 12 months and maintain eligibility for prizes which could increase the estate value. 
2. Cash out the bonds to free up cash for the estate to use and distribute to beneficiaries once probate is complete. 

In both cases, it’s important to note that cashing out might not be an option if the holdings are valued at more than £5,000, though there are sometimes discretionary allowances.

In this instance, NS&I usually requires a Grant of Probate to release funds, so they effectively remain frozen until probate is complete, just like any other illiquid asset.

This is where Provira’s Estate Advance can provide a simple solution.

Designed for executors facing a high Inheritance Tax bill on an asset-rich, cash-poor estate, our loan provides access to up to 50% of the net value of the estate within days. 

For more information, read about our loan here.

Do Premium Bonds automatically pass to a spouse or next of kin?

No, there’s no automatic transfer. A spouse cannot inherit Premium Bonds directly. 

Different from how other areas of the estate can be passed on, only the executor is able to claim Premium Bonds and any attributed prize money to execute the deceased’s wishes. 

Of course, sometimes the executor is a spouse or next of kin, in which case they would have the legal authority to deal with them directly anyway.

To learn more about who can become an executor and what their role is, read our guide here.

Are Premium Bonds subject to Inheritance Tax after death?

Yes, Premium Bonds form part of the estate for Inheritance Tax purposes. IHT may be payable on their value if the estate sits above the tax-free thresholds. 

Any prizes won after the date of death are classified as estate income. 

So while leaving the bonds in the prize draw for up to 12 months may generate cash for the estate, it may delay when inheritances can be distributed to beneficiaries as it will take time to cash them out and close the accounts.

It’s common for executors to take advice on this decision and consult other beneficiaries on which option is more suitable for everyone.

How can Provira help 

What happens to Premium Bonds after death can significantly impact an executor’s role. 

As NS&I often need a Grant of Probate to release funds, they become yet another illiquid asset that pushes the value of the estate up and increases the estate’s exposure to Inheritance Tax.

As an executor, finding the cash to cover this can be both a financial and emotional strain.

Our Estate Advance can relieve this, allowing executors to pay off Inheritance Tax by providing access to up to 50% of the net estate value. 

We also: 

• Work directly with solicitors and make sure your costs are covered when they need to be
• Only charge simple interest, not compound interest
• Don’t charge early repayment fees if everything wraps up sooner than expected
• Dedicate a supportive member of our team to guide you through your case from start to finish.

Struggling to cover an Inheritance Tax bill? Start your application for our Estate Advance today.