Key takeaways: what to know in one minute
- ISAs remain tax-free during life but form part of the deceased's estate for inheritance tax (IHT) unless transferred into certain types of spouse allowances; the tax benefit does not remove the asset from the estate.
- Premium Bonds are a cash asset held by NS&I and are normally included in the estate value; they can often be traced and paid without full probate if under NS&I thresholds, but rules vary.
- Probate may be required for ISAs and sometimes for Premium Bonds depending on account values and whether the provider accepts executor evidence without grant.
- For liquidity needs, ISAs are usually more predictable (interest/dividends or cash accounts); Premium Bonds have no guaranteed return and prize odds are variable.
- Immediate practical steps: keep up-to-date nominations, record holder details, and include ISA/Premium Bond holdings in estate paperwork for executors.
Estate planning for ISAs and Premium Bonds affects tax, probate timelines and how quickly heirs access funds. The following sections explain how each product is treated, practical steps for executors and simple strategies to reduce surprises for beneficiaries.
How ISAs and Premium Bonds affect estate planning
What counts as part of the estate
HMRC treats most assets owned by the deceased as part of their estate for IHT purposes, including cash ISAs, stocks and shares ISAs and Premium Bonds. Reference guidance from HMRC clarifies what is taxable and how values are determined: HMRC: Inheritance tax.
How ISAs are treated on death
- Ownership: An ISA remains an asset of the deceased until formally transferred or closed.
- Spousal/partner rules: A surviving spouse or civil partner may receive an additional ISA allowance (the Bereaved Spouse Allowance / Additional Permitted Subscription) that permits transfers without losing tax benefits — see Gov.uk: ISAs. This allowance is time-limited and must be claimed correctly.
- Probate: ISA providers will typically require probate or evidence of executorship to transfer or close an ISA, though smaller accounts may be released with certified documents.
How Premium Bonds are treated on death
- Ownership and liquidity: Premium Bonds are a cash-like asset. NS&I holds the bonds in the name of the registered owner and may pay out on presentation of appropriate documentation.
- Traceability: NS&I often allows claims without a grant of probate for smaller estates if the value falls under their discretion threshold; official guidance: NS&I: Premium Bonds.
- Prize structure: Unpaid prizes for months prior to death may still be claimable by the estate; ensure records include the bond numbers or account reference.
Inheritance tax and probate: ISAs versus Premium Bonds
Who pays IHT and how values are set
- Valuation date: The value on death (probate valuation date) is used for IHT calculations. For ISAs, this is the market value for stocks and shares ISAs or cash balance for cash ISAs. For Premium Bonds, the surrender value (i.e., face value of bonds) counts.
- IHT liability: Both ISAs and Premium Bonds increase the estate value and may push the estate over the nil-rate band (current HMRC thresholds apply). If the estate exceeds the nil-rate band, IHT at 40% can apply to the excess (see HMRC).
Probate requirements for ISAs
- Provider policy: Many ISA providers require a grant of probate when the total estate size exceeds provider thresholds. Even where not required, they will usually insist on certified copies of the death certificate and proof of identity for executors or administrators.
- Example: For a stocks and shares ISA with liquid assets, executors often need probate to transfer holdings into a beneficiary's account or sell holdings to settle liabilities.
Probate requirements for Premium Bonds
- NS&I discretion: NS&I publishes claimant thresholds and guidance. For modest holdings, NS&I may pay out to executors with certified documentation and without a grant of probate; larger sums typically require probate. See NS&I guidance: NS&I: how to claim.
- Timing: NS&I prize draws continue after death until the bonds are redeemed; check latest months' prizes when valuing the estate.
Practical valuation example (indicative, 2026)
- If a deceased holds £250,000 in cash ISAs and £50,000 in Premium Bonds, the estate value includes both sums. If the nil-rate band is £325,000 (standard threshold), no IHT applies. If the estate also includes property pushing the total to £500,000, then IHT may be due on £175,000 at 40% = £70,000 (subject to reliefs and precise rulings). Figures are illustrative and indicative at time of writing.
Tax efficiency and reporting: tax-free ISAs or Premium Bonds
Income, gains and the ISA wrapper
- ISAs: Interest, dividends and capital gains generated within an ISA are tax-free during the holder's lifetime and do not need to be declared on self-assessment. However, the tax-free nature does not exclude the ISA from the estate for IHT.
Premium Bonds and prize tax treatment
- Premium Bonds: Prizes are tax-free; they are not treated as income and do not appear on a tax return. Again, the value of the bonds counts for IHT.
Executor reporting responsibilities
- Report to HMRC: Executors must report the estate value, including ISAs and Premium Bonds, on the IHT account and pay any tax due before distributing assets. HMRC guidance on reporting is at HMRC: valuing the estate.
- Records: Keep statements, bond references and transaction histories. These speed up probate and claims with NS&I or ISA managers.
Comparing returns, risk and prize odds: ISAs vs Premium Bonds
Below is a practical, side-by-side comparison of the main estate-planning relevant characteristics.
| Feature |
ISAs (cash & stocks) |
Premium Bonds |
| Typical return |
Cash ISAs: fixed/variable interest; Stocks & shares ISAs: market returns (variable) |
No guaranteed return; expected prize rate advertised by NS&I (variable). Actual return is probabilistic. |
| Risk profile |
Cash: low risk; Stocks: higher risk/volatility |
Capital preserved (face value); returns uncertain and skewed toward occasional prizes |
| Effect on IHT |
Included in estate value for IHT |
Included in estate value for IHT |
| Liquidity on death |
Often accessible once provider accepts executor proof; stocks may take time to liquidate |
NS&I may release funds quickly for small claims; larger estates sometimes need probate |
| Best for |
Placing savings for predictable income or long-term growth while retaining tax shelter |
Those willing to accept variable prize-based returns and who prioritise capital preservation without guaranteed yield |
Prize odds explained (simple)
- NS&I publishes an annual prize rate that translates into odds of winning. While the average expected return can be estimated, distribution is uneven: most bondholders win nothing in a given year while a small number win larger prizes. This statistical skew matters for estate planning because heirs cannot rely on regular income from Premium Bonds.
Access, liquidity and cash needs: ISAs or Premium Bonds
Access rules for ISAs
- Cash ISAs: Usually immediate withdrawal subject to provider terms; check notice periods for fixed-rate products.
- Stocks and shares ISAs: Selling holdings can take several days; market risk may affect the value available on sale.
- Transfers: ISAs can be transferred between providers without losing tax wrapper provided transfer procedures are followed.
Access rules for Premium Bonds
- Redemption: NS&I allows redemption of bonds at face value. Payout timing can be quick for active accounts; executors should confirm required documentation.
- No penalty: There is no early withdrawal penalty but there is also no interest; opportunity cost should be considered.
Short-term liquidity for estate costs
- Executors often need cash to pay funeral costs or IHT. For predictable short-term needs, cash ISAs or bank accounts are preferable since market holdings or prize-dependent assets may not be immediately liquid or predictable.
Practical estate steps: naming beneficiaries and NS&I procedures
How to nominate or name beneficiaries
- ISA nominations: ISAs do not accept a binding beneficiary nomination in the way pensions sometimes do. Instead, providers rely on the executor/administrator to transfer assets. Spouses can apply for the Additional Permitted Subscription to retain tax benefits. Confirm nomination and transfer policies with the ISA provider and keep copies of any nomination forms.
- Premium Bond nominations: NS&I offers a process for recording beneficiary nominations and provides guidance for claimants. Keeping NS&I reference numbers and nominee details up to date speeds claims: NS&I claims.
Step-by-step executor checklist (practical)
- Collect documentation: death certificate, Will (if any), ID for executors, account statements for ISAs and NS&I.
- Contact providers early: notify ISA manager and NS&I ask about their claimant procedures and thresholds.
- Decide whether to apply for probate immediately; get professional advice if estate includes property or is near the IHT threshold.
- Obtain valuations: market value of investments, cash balances and face value of Premium Bonds as at date of death.
- Pay liabilities and IHT before distributing to beneficiaries.
Advantages, risks and common errors
- ✅ Benefits / when to use
- ISAs: Use for long-term tax-efficient saving and where beneficiaries need predictable values.
- Premium Bonds: Use for capital protection and chance-based tax-free prizes; useful as part of a diversified holding for risk-averse savers.
-
Both: Can sit together in an estate strategy to balance liquidity, potential growth and capital preservation.
-
⚠️ Errors to avoid / risks
- Assuming tax-free means outside IHT: It does not. ISAs and Premium Bonds still increase estate value.
- Failing to update nominee/contact details: This slows payout.
- Relying on Premium Bonds for steady income: Prize variability makes them unsuitable for dependable cashflow in estate distributions.
Comparative snapshot: ISAs vs Premium Bonds for estates
ISAs
- ✓ Predictable valuation
- ✓ Tax-free income/gains during life
- ⚠ Included in IHT
Premium Bonds
- ✓ Capital preserved at face value
- ✓ Prizes tax-free
- ✗ No guaranteed return
Questions frequently asked about ISAs and Premium Bonds in estates
Do ISAs count towards inheritance tax?
Yes. ISAs are included in the deceased's estate for IHT valuation even though income and gains were tax-free during life.
Can Premium Bonds be paid without probate?
Sometimes. NS&I may release funds for small claims without a grant of probate but larger sums usually require probate; check NS&I claimant guidance.
Can a spouse inherit an ISA tax-free?
The ISA remains part of the estate, but a surviving spouse may be able to use an additional ISA allowance to retain tax benefits. This must be claimed according to provider and HMRC rules.
What documentation do executors need to claim Premium Bonds?
Typically a certified copy of the death certificate, proof of executorship or letters of administration, and the NS&I account or bond reference details.
How should executors value stocks within ISAs?
Use the market value on the date of death. If holdings are thinly traded or overseas, seek a professional valuation.
Yes. Prizes awarded after death but relating to draws before redemption may be claimable by the estate; keep prize statements.
Should nominations be used for ISAs?
ISAs do not permit binding beneficiary nominations like some pensions. Keeping provider records and a clear Will is the practical approach.
How long do executors typically wait for NS&I or ISA payouts?
Times vary: small claims can be resolved within days or weeks; larger estates needing probate may take months depending on the estate complexity.
Where to get official guidance?
Official pages: HMRC: Inheritance tax, Gov.uk: ISAs, NS&I: Premium Bonds.
Can gifting Premium Bonds before death reduce IHT?
Gifts may reduce IHT but must survive seven years or fall under exemptions; gifts with reservation rules can negate benefits. Seek tax/legal advice for specific cases.
Your next step:
- Obtain and store current statements and NS&I bond references in a secure, accessible place and confirm nominee details with providers.
- If the estate is near the IHT threshold, consult a solicitor or tax adviser to model outcomes and consider timing of distributions or inter-spousal transfers.
- Prepare an executor pack: certified copies of ID, the Will, recent account statements for ISAs and Premium Bonds, and contact details for providers.