Are NS&I Premium Bond prizes tax-free in the UK?

Full answer

Premium Bond Prizes and UK Tax Premium Bonds are issued by National Savings and Investments (NS&I), a government-backed savings institution. Every prize won from Premium Bonds is entirely exempt from UK Income Tax, Capital Gains Tax, and does not affect your Personal Savings Allowance. Why Prizes Are Tax-Free Premium Bond prizes are not classified as interest or investment income. They are treated as prizes under the Premium Bonds Act, and HMRC does not tax them. This applies whether you win GBP 25 or the GBP 1 million jackpot. You do not need to declare Premium Bond winnings on a Self Assessment return. Comparison With Other Savings Regular savings accounts pay interest, which is subject to Income Tax above the Personal Savings Allowance (GBP 1,000 for basic rate taxpayers, GBP 500 for higher rate taxpayers, and nil for additional rate taxpayers). Cash ISAs pay tax-free interest up to the GBP 20,000 ISA allowance. Premium Bonds sit outside all of these limits -- they are unconditionally tax-free with no cap. The Prize Rate and Expected Return For 2026, NS&I's tax-free prize fund rate has fluctuated in line with interest rate movements. It is important to compare the effective return from Premium Bonds against the after-tax return on savings accounts. For a higher rate taxpayer, the tax-free nature of Premium Bond prizes makes the effective prize rate more competitive relative to taxable savings. However, your actual return varies because prizes are determined by a random draw. Holding Limits and FSCS You can hold up to GBP 50,000 in Premium Bonds per person. Importantly, NS&I is backed by HM Treasury directly, not the FSCS, so there is no GBP 85,000 limit -- your entire holding is government-guaranteed. Premium Bonds are therefore considered extremely low risk, combining a tax-free prize structure with full government backing.

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