Premium bond winnings after death (12 month period)

rnem170

Whilst premium bond winning are tax free when you are alive, if premium bonds are kept for the 12 months allowable post death, is it a correct assumption that any winnings in the period are taxed at the prevailing rate for the beneficiaries?  

For example, if £500 was gained in winnings, split 40/40/20 between a 40% payer, 20% payer and 0% payer, do you effective split it 200/200/100 and declare that on you tax return/interest statement (and that goes towards the 500/1000/1000 tax free interest allowances?

JGB1955

Aren't premium bond prizes tax free? And it would be the estate that receives the prizes, not the beneficiaries.

Keep_pedalling

The prizes remain tax free, so nothing for the beneficiaries to pay.

rnem170

JGB1955 said:

Aren't premium bond prizes tax free? And it would be the estate that receives the prizes, not the beneficiaries.

Yes and maybe no...  found this:

Cash them out later – NS&I holds premium bonds for a year after the owner’s death, and they continue to be eligible for the prize draws. After a year, the executor or administrator can claim any prizes won, along with the original value of the bonds. While this means the value of the bonds could increase, it will hold up the inheritance process.

This means that if you keep them in for 12 months, if the winnings tip you over the threshold for IHT, you would pay it @ 40%.  It's a bit tricky.  NS&I won't tell you how much they have won.  If you are lucky enough to know the bond/account number, you can see for yourself.  If you don't, then that means you can't complete IHT forms until 12 months after death - as you won't know the winnings.   If the deceased won £1m, I'm guessing you would have to post declare IHT and pay tax.  If you've had to pay IHT due to estate value, you would have to post declare extra.

....but when NS&I dissolve the account, they return money from bonds and money from prizes separately,  so the statement of "the value of the bonds could increate" is wrong.  

Even the guidance on the .gov site is very vague.


Interest on savings accounts is the same I think.  Since when you die you cease to get any tax free allowance, any interest on any accounts needs to be declared 

Found this on .gov:

Up to 5 April 2024, if the only income the estate received during the administration period was from bank account interest which was less than £500, you do not need to report the estate to HMRC.

From 6 April 2024, if the estate’s income from any sources is less than £500, you do not need to report the estate to HMRC.

The £500 tax-free amount applies: 

• for every tax year of the administration period, but you cannot carry over unused amounts from one year to the next
• to all types of income, except ISAs, which continue to be exempt from Income Tax or Capital Gains until the estate is closed or up to 3 years after the person’s death

Keep_pedalling

I don’t really see why leaving the bonds should impact the administration of the estate IHT is based on the value of the estate at the rime of death, any prises won after that don’t impact the value of bonds held at the time of death.

The only hold up will be that the bonds (plus any winnings) can’t be cashed and distributed for 12 months. The rest of the estate can be distributed as soon as those assets are liquidated.

ColinGala

Until Probate is granted NS&I retain any prize money. Once probate is granted, and you keep the Premium Bonds for a year after the passing, NS&I send the subsequent prizes monthly via a Warrant Cheque (can only be cashed into the Executor account). They also then send cheques for the accumulated prizes won between month of passing and probate being granted. They send individual cheques for each prize so there are many trips to the bank.... 
The winnings are tax free and there is no  tax to pay for beneficiaries (similar to shares in an ISA account which can be held for up to 3 years after passing with no CGT or income tax due from beneficiaries)

Famau

ColinGala said:

Until Probate is granted NS&I retain any prize money. Once probate is granted, and you keep the Premium Bonds for a year after the passing, NS&I send the subsequent prizes monthly via a Warrant Cheque (can only be cashed into the Executor account). They also then send cheques for the accumulated prizes won between month of passing and probate being granted. They send individual cheques for each prize so there are many trips to the bank.... 
The winnings are tax free and there is no  tax to pay for beneficiaries (similar to shares in an ISA account which can be held for up to 3 years after passing with no CGT or income tax due from beneficiaries)

Yes.  I am doing just this. I receive a cheque for any winnings arising from my late mother's bonds.  In a few months the 12 month limit will be reached and NS&I will simply close the account and send me a cheque for the balance at that time.  No tax implications.

Bobziz

Keep_pedalling said:

I don’t really see why leaving the bonds should impact the administration of the estate IHT is based on the value of the estate at the rime of death, any prises won after that don’t impact the value of bonds held at the time of death.

The only hold up will be that the bonds (plus any winnings) can’t be cashed and distributed for 12 months. The rest of the estate can be distributed as soon as those assets are liquidated.

Agreed, but it does mean, technically, that the administration period can't be finished until the bond value and any prizes have been distributed ? There is also the possibility that prizes could tip the estate into IHT territory.

Keep_pedalling

Bobziz said:

Keep_pedalling said:

I don’t really see why leaving the bonds should impact the administration of the estate IHT is based on the value of the estate at the rime of death, any prises won after that don’t impact the value of bonds held at the time of death.

The only hold up will be that the bonds (plus any winnings) can’t be cashed and distributed for 12 months. The rest of the estate can be distributed as soon as those assets are liquidated.

Agreed, but it does mean, technically, that the administration period can't be finished until the bond value and any prizes have been distributed ? There is also the possibility that prizes could tip the estate into IHT territory.

No, the winnings are not subject to IHT, IHT only apply to assets in place at the time of death.

goodread

HMRC have just confirmed to me that no income tax is due on the premium bond prizes won by my Dad since he died. We only included the value of the bonds he had when estimating the estate value for IHT purposes as part of the probate application. As others have said here, the prizes are not counted for IHT.