Premium Bonds prizes are completely tax-free — every penny of every prize is yours to keep with no Income Tax or Capital Gains Tax. They are one of the few truly tax-free investments available in the UK. Here is everything you need to know for 2026/27.
Premium Bonds: Key Facts for 2026/27
| Feature | Detail |
|---|---|
| Tax on prizes | Zero — Income Tax and CGT exempt |
| Prize rate (April 2026) | 4.40% tax-free equivalent |
| Minimum holding | £25 |
| Maximum holding | £50,000 per person |
| Odds of a single £1 bond winning per month | Approximately 1 in 22,000 |
| Smallest prize | £25 |
| Largest prize | £1,000,000 |
| Capital guarantee | Yes — backed by HM Treasury |
| Prizes declared on SA return? | No |
Why Premium Bonds Are Tax-Free
Premium Bonds prizes are exempt from UK tax by statute — under the National Savings and Investments Act and confirmed in HMRC’s savings tax rules. The prize payment is not considered interest or income — it is a prize. HMRC has no mechanism to tax it.
This applies to:
- UK residents
- Non-residents who hold Premium Bonds (though foreign tax laws may differ)
- Prizes won by adults holding on behalf of children
How Are Premium Bonds Prizes Calculated?
NS&I sets a prize rate — the annualised rate that determines the total prize fund. At 4.40%, the total value of all prizes paid across all bond holders in a year equals 4.40% of the total eligible bond fund.
The prize rate is not guaranteed — NS&I adjusts it in response to the Bank of England base rate and competitive pressures. The rate has moved significantly in recent years: from just 1.00% in 2021 to a peak of 4.65% in 2023, settling at 4.40% as of April 2026.
Crucially: the prize rate does not mean you personally earn 4.40%. Your individual return depends entirely on whether you win. With a small holding, your expected return in a month is tiny.
Premium Bonds vs Savings Account: When Each Wins
The tax-free nature of Premium Bonds matters most for people who cannot shelter their savings interest elsewhere.
Personal Savings Allowance (2026/27):
- Basic rate taxpayers: first £1,000 of savings interest tax-free
- Higher rate taxpayers: first £500 tax-free
- Additional rate (over £125,140): zero Personal Savings Allowance — all savings interest taxed at 45%
| Taxpayer type | Best savings rate | Premium Bonds advantage |
|---|---|---|
| Basic rate + under £1,000 interest | Savings account likely better | Minimal — PSA covers most interest |
| Higher rate + over £500 interest | Premium Bonds equivalent to ~5.1% taxable rate | Significant if >£500 interest already earned |
| Additional rate | Premium Bonds equivalent to ~8% taxable rate | Very significant — no PSA, all interest taxed at 45% |
Example: Susan earns £120,000 and has £50,000 in savings. She has no Personal Savings Allowance. Savings interest at 4.5% = £2,250, taxed at 45% = £1,012 tax, net: £1,238.
Premium Bonds at 4.40% prize rate: expected prizes = £2,200 — all tax-free. Even with the randomness, Premium Bonds are the rational choice for Susan.
Worked Example: Standard Holder
Mark holds £10,000 in Premium Bonds. The prize rate is 4.40%.
Expected annual prizes = £10,000 × 4.40% = £440
In practice, Mark might win:
- £0 in some months
- A £50 prize in others
- Occasionally a £100 prize
Over a long period, the statistical average approaches £440/year — but month-to-month results are random. Premium Bonds are not suitable as a substitute for a regular savings return if you need predictable income.
What Happens to Premium Bonds After Death?
The bonds remain eligible for prizes for up to 12 months after the bond holder’s death. The estate continues to receive any prizes won during this period. After 12 months, bonds are cashed in automatically.
Premium Bonds form part of the estate for IHT purposes — the capital value is included in the estate calculation. However, this does not affect the tax-free status of any prizes.
How to Buy and Manage Premium Bonds
- Buy directly at nsandi.com or by post
- Pay by debit card or bank transfer
- Prizes are paid monthly into a linked bank account or reinvested as new bonds
- Check your bonds in the NS&I Prize Checker
- ERNIE (Electronic Random Number Indicator Equipment) selects winners
Prizes from August in the previous tax year onwards can be found in the NS&I app or online account. You do not receive a tax certificate for prizes — they are not needed for any tax return.
See our savings interest tax guide, ISA allowance 2026/27, and Personal Savings Allowance explained.