Are Premium Bonds prizes taxable in the UK?

Full answer

Premium Bonds are a savings product issued by NS&I (National Savings and Investments), a government-backed institution. Instead of paying a regular interest rate, NS&I holds all interest in a prize fund and distributes it as monthly tax-free prizes. Statutory tax exemption Premium Bonds prizes are explicitly exempt from income tax under ITTOIA 2005 Section 694. This applies to all prizes regardless of: -- The size of the prize (from GBP 25 to GBP 1,000,000) -- The number of prizes won in a year -- The taxpayer's income tax band (basic, higher, additional rate or non-taxpayer) -- Whether the winner is a child, adult or trustee There is no income tax, capital gains tax, or any other UK tax on Premium Bonds prizes. Prize fund rate and equivalent gross yield The prize fund rate is set by NS&I each month. As of April 2026 the estimated rate is approximately 4.4% of the total invested. However, this is not a guaranteed interest rate -- it determines the total prize pool distributed each month, with individual prize amounts determined by a random draw. Equivalent gross yield depends on the taxpayer's rate: -- Non-taxpayer: 4.4% gross equivalent -- Basic-rate (20%): 4.4% / (1 - 0.20) = 5.5% gross equivalent -- Higher-rate (40%): 4.4% / (1 - 0.40) = 7.33% gross equivalent -- Additional-rate (45%): 4.4% / (1 - 0.45) = 8.0% gross equivalent These equivalents illustrate why Premium Bonds are particularly attractive for higher and additional-rate taxpayers compared to savings accounts. Holding limits -- Minimum purchase: GBP 25 -- Maximum holding: GBP 50,000 per person -- Children can hold Premium Bonds (purchased by a parent or guardian) Probability of winning The odds of any GBP 1 bond winning a prize in a given month are approximately 21,000 to 1. Those holding GBP 50,000 (maximum) can expect to win on average once every 5-6 months; the median expected prize value is around GBP 25 per month. A small minority win the GBP 1,000,000 jackpot; most wins are GBP 25 or GBP 50. Inheritance and estates Premium Bonds are not transferable. On death, the estate can choose to hold bonds for up to 12 months after death (they remain eligible for prizes during this period) or cash them in.