Probate, or a Grant of Probate, is the legal document that grants the Executor the right to administer the deceased’s Estate. It is not required upon every death, as if the deceased did not own any sole assets or had an Estate low in value, the assets can usually be sold or transferred without probate. Each financial institution has its own individual threshold for how much the Estate is worth before probate is required, which is generally between £5,000 and £50,000.
Like banks and building societies, National Savings and Investment (NS&I), which hold government-backed Premium Bond investment products, limits how much money they can release without a Grant of Probate. This threshold is £5,000; therefore, if the deceased owned Premium Bonds of a value of over £5,000, Probate will be required.
If someone dies without a Will, a Grant of Probate is instead known as Letters of Administration, but it grants the individual the same legal right to administer the Estate. In these cases, the person responsible for dealing with the Estate is known as an Administrator.
What are Premium Bonds?
A Premium Bond is an investment product held with the government by National Savings and Investment (NS&I). The government pays interest on these Bonds, and this interest is distributed by a lottery in a monthly prize draw.
Therefore, the Bond itself doesn’t earn interest. Premium Bonds can be bought online, over the phone, or by post.
How do Premium Bonds work?
Each £1 held as a Premium Bond is given a unique number; if this number is drawn, the bond owner will win a prize. Therefore, for example, if you invest £500, you will be assigned 500 bond numbers, each giving you one chance to win a prize.
A cash prize can be anywhere between £25 and £1 million and is free of tax. Prizes are either paid straight into the individual’s bank account, by cheque through the post or invested back into more Bonds.
Investors will need to purchase at least £25 worth of Bonds, with the maximum amount an individual can invest being £50,000. The owner of the Premium Bonds will begin to be entered into the monthly draw once they have held the Bonds for a full month.
What happens to Premium Bonds when the owner dies?
Unlike most other assets, Premium Bonds cannot simply be passed on to beneficiaries of the Estate, as they cannot be transferred into someone else’s name.
When administering someone’s Estate and dealing with Premium Bonds, there are two main options available to the Executor(s):
- Claim the Premium Bonds immediately – they can be repaid as part of the Estate administration process, and the funds from this sale will be included as part of the total Estate value. Therefore, beneficiaries will be able to receive this quickly as part of their inheritance. In this case, the Bonds will only be eligible for prize draws in the month that they are claimed, so it’s likely that only the value of the Bonds will be received.
- Cash them out later – NS&I will hold the Premium Bonds for 12 months after the death of the owner, during which time they are eligible for the prize draw. After this period, the Executor can claim any prizes won during this time, as well as the face value of the Bonds, meaning that their overall value could increase for beneficiaries. However, this will delay their inheritance. Repayment can be claimed at any time during these 12 months.
It’s important to consider that although the winnings are not taxable when won, they are included in the Estate for the purposes of Inheritance Tax (if applicable).
Therefore, even if you think the deceased didn’t own Premium Bonds, it’s important to double-check when calculating the Estate’s net value.
However, there are excepted situations where Inheritance Tax will not be payable on the Estate.
Claiming Premium Bonds after a death
The Executor can trace and claim Premium Bonds belonging to the deceased either online or by post. If applying by post, they must include a copy of the death certificate and the Will.
If applying online, the Executor must complete a bereavement claim form. NS&I will review the application before potentially requesting a Grant of Probate.
Cashing them out
If you’re acting as an Executor or Administrator on an Estate, managing Premium Bonds is one of many tasks that must be undertaken.
Estate administration can involve complicated paperwork, tax work, and legal jargon that not everyone feels able to deal with themselves. Whilst you can choose to handle this process yourself, help is available.
Here at Redwood, we are experts in Estate Administration and work with specialist Probate providers. Our Estate solutions range from simply obtaining the Grant of Probate to full Estate Administration.
We can help you manage the entire process, taking the financial and legal responsibility off your hands.
Are Premium Bonds Inheritance Tax-free?
No, Premium Bonds are not free from Inheritance Tax. If the capital tied up in them forms part of the deceased’s Estate, their value may be subject to Inheritance Taxation when they are passed on.
Are Premium Bonds considered savings?
Yes, Premium Bonds are a very popular way to make savings, especially when savings interest rates are so low. The chance of winning prizes that can be worth up to £1m each month is a very attractive option for many savers. Around twenty-one million Brits hold Premium Bonds.
How much can you invest in Premium Bonds?
You can invest from as little as £25 in Premium Bonds and hold a maximum of £50,000. This would give you between 25 and 50,000 entries in the monthly prize draw.
How much could I win with Premium Bonds?
The monthly prize draw offers winners between £25 and a life-changing sum of £1m.
Here’s a breakdown of the amounts you could win:
Each month, two Premium Bond holders win £1m while six bondholders win £100,000.
You can opt to have winnings paid straight into your bank account or to receive them by post in the form of a warrant (like a cheque).
Premium Bonds are a useful and popular savings tool. However, it is important to remember that if you die, your Premium Bonds become part of your Estate.
This means they could be liable for Inheritance Tax, which is payable at up to 40% above a certain threshold.
In terms of what happens to any winnings, the person managing your affairs can opt to leave the bonds in the prize draw for 12 months after the date of the death.
Once NS&I has been told about a customer’s death, any Premium Bonds and prizes won are paid by warrant to the person who is entitled to the money. A death claims form will need to be completed first.