Premium Bonds: Do you have to declare your Bonds on your tax return? Check now

Martin Lewis gives updated advice on premium bonds

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With roughly 21 million Britons owning Premium Bonds, surprisingly few know whether they need to declare them on their tax returns. Anyone who has experienced the self-assessment tax return knows how seemingly complicated it can be, but knowing what needs to be declared and what doesn’t can simplify the process.

Premium Bonds are one of the most popular savings types in the UK, with millions trusting their money to the NS&I in the hopes of winning a jackpot. 

This is the unique selling point of Premium Bonds, as while it does not offer interest like traditional accounts it does provide a lottery-effect and potential winnings of up to £1million. 

The interest rate that would have been paid out in normal accounts is rather pooled to fund the monthly draw prizes which provides millions with prizes. 

On average, the monthly draw contains two £1million jackpots, six £100,000 big value winners and over 2,000 prizes worth between £1,000 and £100,000. 

However, this is where many get confused when it comes to declaring their Bonds and prizes or not.

With personal savings allowances, a certain amount of interest on all savings is automatically tax-free. 

The allowances differ depending on what taxpayer rate an individual is on:

  • 20 percent rate has an allowance of £1,000 per year
  • 40 percent rate has an allowance of £500
  • 45 percent rate has no allowance

With record low interest rates still battling to increase, the vast majority of savers are enjoying tax-free interest on their savings. 

However, if one were to win a jackpot of £20,000, would they then need to declare it as it is above the personal allowance?

Premium Bonds do not count towards one’s personal allowance, and essentially creates its own allowance if one were to win a big payout. 

All prizes are tax-free and can be a great advantage for those who have exceeded their personal allowance limit. 

It is worth noting that while the bonds and any winnings are tax-free, they are not immune to inheritance tax.

In essence, Premium Bonds and the potential winnings act like an ISA. 

ISAs, whether cash, stocks and shares or junior, offers tax-free interest provided that one doesn’t exceed the £20,000 annual limit. 

This limit is calculated using the money in all of the ISAs opened in one’s name so it is vital to ensure it is not exceeded accidentally. 

Premium Bonds on the other hand offers £1 bonds with a minimum deposit of £25 and a maximum of £50,000. 

It has been argued that the more Bonds one buys the higher their likelihood of winning, although this cannot be guaranteed. 

Additionally, past winners have had a range of investments and the winning bond numbers are picked through a computerised system nicknamed ERNIE to ensure the winners are chosen at random. 

NS&I has also noted that because of this, Premium Bonds are not an ideal choice for those that need a guaranteed outcome.

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