Are gifts of savings creating a tax headache? Many UK residents weigh ISAs and NS&I Premium Bonds when gifting money to family or friends. This guide explains, in plain British English, how tax rules and legal ownership affect gifting decisions so that readers can compare options without jargon.
Key takeaways: what to know in one minute
- ISAs are tax-wrapped for the account holder, not the donor. Gifts into someone else’s ISA are limited by that recipient’s ISA allowance and must be subscribed by them to benefit from tax-free status.
- Premium Bond prizes are tax-free, but legal ownership matters. A prize is paid to the registered holder; if gifts are not properly transferred, the donor may still legally own the bond and any prizes could form part of their estate.
- Gifts can affect inheritance tax (IHT) depending on timing and form. Most outright gifts survive for 7 years for IHT purposes; there are specific exemptions and rules (annual exemption, normal expenditure out of income).
- Using the annual gift allowance is a tax-efficient route to fund savings for others, but the treatment differs sharply between ISAs and Premium Bonds; documentation and correct registration prevent unintended tax consequences.
- Always verify official guidance (HMRC, NS&I) and consider regulated advice for complex estate planning. Links to HMRC and NS&I are included for reference.
How ISAs and Premium Bonds are taxed
ISAs (Individual Savings Accounts) are a tax wrapper: interest, dividends and capital gains generated inside an ISA are not liable to income tax or capital gains tax for the account holder. That benefit applies only where the recipient has subscribed the ISA within their annual allowance (indicative ISA allowance for 2025/26: £20,000) and the funds are recorded under their account.
NS&I Premium Bonds do not pay interest. Instead, bondholders enter a prize draw. Prizes are tax-free in the UK — HMRC does not treat Premium Bond prizes as taxable income. However, the tax position depends critically on who legally owns the bond at the time of the prize: the registered holder receives the prize, and if a donor retains legal title, any prize may be treated as theirs for tax and estate purposes.
Key practical notes:
- Interest vs prize: With ISAs, the tax efficiency applies to earned income (interest/dividends) and capital gains. With Premium Bonds, returns are probabilistic and tax-free prizes are only relevant to the registered holder.
- Documentation matters: For both products, clear records of transfers, nominations or subscriptions are essential to show who owned the asset if HMRC or an executor queries the position.
Sources: HMRC: ISAs, NS&I: Premium Bonds.
Gifting into ISAs versus Premium Bonds: tax rules
Gifting into another person's ISA is not a formal transfer of an ISA itself. The rules are:
- The recipient must subscribe the money into their own ISA to receive tax advantages. A donor cannot add funds to someone else's ISA directly; funds must be handed to the recipient who then subscribes within their ISA allowance.
- If the recipient fails to subscribe the funds into an ISA, any interest or gains on that money are taxable to the recipient if held in a taxable account.
- Transfers of existing ISAs between providers are permitted, but you cannot transfer an ISA by gifting — the account remains in the original holder's name unless they choose to reassign or withdraw and give funds out-of-ISA.
Gifting Premium Bonds involves changing legal ownership with NS&I. Key rules and practical steps:
- The donor can nominate a recipient by cashing bonds and giving the cash, or by instructing NS&I to change the registered holder (a transfer form). The registered owner receives prizes.
- If bonds remain in the donor's name but are used for the recipient's benefit (e.g. a parent buys bonds but keeps them registered), any prizes legally belong to the donor and the bonds remain part of the donor's estate for IHT purposes.
- NS&I allows multiple registered holders or accounts for children under a nominee system (e.g. a guardian opening Junior Premium Bonds), but the official ownership rules determine tax and estate treatment.
Practical example: If £10,000 is given to a child to purchase Premium Bonds but remains registered in the giver’s NS&I account, any prizes and the capital still count as the giver’s assets for IHT. To avoid this, the giver should transfer the bonds' registration to the child or withdraw and supply the cash for the child to register directly.
Inheritance tax and estate planning with ISAs
ISAs are held in the deceased’s name; the ISA value forms part of the estate for IHT. There are some allowances and specific reliefs:
- Estate value: On death, the value of an ISA is typically included in the deceased’s estate for IHT calculations.
- Spousal rights: Surviving spouses or civil partners can receive an additional ISA allowance known as the additional permitted subscription (APS). This allows them to add an amount equivalent to the deceased’s ISA value to their own ISA in a specified timeframe. Details and eligibility depend on the timing of the estate administration and HMRC rules.
- Gifts before death: Outright gifts made more than seven years before death are generally outside the estate for IHT. Gifts within seven years may attract taper relief. However, these are IHT rules, not ISA rules — ensuring the recipient holds and controls the asset is critical.
Estate-planning considerations:
- Keeping clear evidence of when and how gifts were made helps executors and HMRC establish whether a gift is potentially chargeable to IHT.
- For larger estates, using the annual gift allowance, normal expenditure out of income rules or making use of exemptions (e.g. weddings, small gifts) can reduce IHT exposure.
Sources: HMRC: gifts and IHT.
When a Premium Bond prize affects your income
Premium Bond prizes are not taxable income for the registered holder. However, there are circumstances where a prize could affect means-tested benefits or perceptions of income:
- Means-tested benefits: A large prize payment could be treated as capital when assessing eligibility for means-tested benefits. Eligibility rules vary between benefits and depend on whether the prize is retained as capital or spent.
- Reported income for lenders: Prize receipts may be considered when verifying income for mortgages or loans; lenders have different underwriting policies.
- Family gifting disputes: If a prize is won on bonds that were intended as a gift but not transferred legally, the legal owner still receives the prize and the situation can create disputes on who benefits.
Practical point: When gifting Premium Bonds, ensure the recipient is the registered holder to avoid prize ownership surprises.
Using the annual gift allowance to fund savings
The UK's annual gift allowance (annual exemption) allows an individual to give away a set amount each tax year free from IHT. For 2025/26 the annual exemption remained at £3,000 (indicative) — check current HMRC guidance for updates.
How this interacts with ISAs and Premium Bonds:
- Funding a recipient's ISA: Use the annual gift allowance to provide cash for another person's ISA subscription. The recipient adds the cash into their ISA; the tax-free status applies because the recipient is the account holder.
- Funding Premium Bonds: The donor can give the cash (within allowances) and the recipient uses it to buy Premium Bonds in their name. Alternatively, the donor can buy and transfer bonds registration to the recipient.
Checklist when using the annual allowance:
- Document the gift: date, amount, purpose.
- Confirm the recipient’s ISA subscription or Premium Bond registration.
- Keep proof of transfer or withdrawal if bonds were transferred on paper with NS&I.
NS&I Premium Bonds: tax, prizes and gifting rules
NS&I publishes the prize fund rate and odds regularly. As of early 2026, the prize fund rate and odds are indicative and subject to change. Key NS&I rules relevant to gifting:
- Registration: The legal holder registered with NS&I receives prizes and dividends. Transferring registration requires NS&I forms or online account changes.
- Joint holdings: Premium Bonds can be held jointly; prizes are paid to the surviving joint holder(s) on death and joint ownership may affect estate calculations.
- Junior Premium Bonds: Parents or guardians can buy bonds for children; NS&I offers ways to register bonds for under-16s. The registered holder for tax and estate purposes is defined by NS&I’s registration.
Practical recommendation: Always use NS&I’s official transfer process to move ownership, and retain confirmation emails or letters.
Sources: NS&I: Premium Bonds rules.
| Feature |
ISAs (gifting cash) |
Premium Bonds (gifting bonds) |
| Tax on returns |
Tax-free for the account holder* |
Prizes tax-free for the registered holder |
| Who gets benefit |
Recipient only if they subscribe into ISA |
Registered holder receives prizes |
| IHT treatment |
Value forms part of donor's estate unless gifted >7 years earlier |
Bonds in donor name may remain in estate; transfer recommended |
| Practical admin |
Recipient must subscribe; keep receipts |
Use NS&I transfer forms; keep NS&I confirmation |
Quick flow: gifting cash vs transferring Premium Bonds
💷 Give cash for ISA → ✉️ Recipient subscribes to ISA → ✅ Tax-free returns for recipient
🎟️ Buy Premium Bonds → 🔁 Transfer registration via NS&I → ✅ Recipient registered gets prizes
⚠️ If not transferred → 📌 Donor remains legal owner → 🧾 Prizes and asset may form donor's estate
Advantages, risks and common mistakes
How to gift into an ISA or Premium Bonds (step-by-step)
Step 1: Decide destination and check allowances
Confirm the recipient's ISA allowance for the tax year and whether the recipient can subscribe. For Premium Bonds, check NS&I maximum holdings and whether the recipient already has an account.
Step 2: Transfer or hand over funds correctly
For ISAs: provide cash to the recipient and ask them to subscribe into their ISA within the tax year. For Premium Bonds: either buy in the recipient’s name or arrange a transfer of registration via NS&I and retain the confirmation.
Step 3: Keep documentation
Retain receipts, transfer confirmations, and correspondence. Documentation is essential for estate purposes and to evidence use of annual exemptions.
Step 4: Review tax and benefit implications
Check whether the recipient’s benefits, mortgage applications or other means-tested considerations may be affected by the gift or subsequent prizes.
Step 5: Revisit estate planning
For significant gifts, revisit IHT planning — consider professional advice if the gift materially alters the estate position.
Questions people ask (frequently asked questions)
Can someone else open an ISA for me?
No. An ISA must be opened and subscribed by the account holder. A donor can supply funds but the recipient must subscribe the ISA to receive tax benefits.
Do Premium Bond prizes need to be declared to HMRC?
No. Premium Bond prizes are tax-free for the registered holder and are not treated as taxable income by HMRC.
If a parent buys Premium Bonds for a child but keeps them in their name, who pays tax?
Prizes and assets legally belong to the registered holder (the parent). The bonds would typically be part of the parent's estate for IHT unless registration is transferred or other gifting rules apply.
How does the annual gift allowance work with savings gifts?
An individual may give up to the annual exemption each tax year (indicative £3,000) without IHT implications; using this to fund a child's ISA or Premium Bonds can be efficient. Accurate dating and records are essential.
What happens to an ISA on death?
The value of an ISA generally forms part of the deceased's estate for IHT. Spouses may be able to use an additional permitted subscription (APS) to preserve tax benefits — check HMRC rules.
Can Premium Bonds be transferred online?
NS&I allows many account changes online, but transferring registration sometimes requires forms (or agent action) and confirmation should be retained. See NS&I for current process.
Will a Premium Bond prize affect means-tested benefits?
A large prize could be treated as capital and affect eligibility for means-tested benefits. The precise impact depends on the benefit rules and whether the capital is retained.
Practical examples and simple scenarios
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Example 1 — Small gift to child (£1,000): Give cash within annual exemption and ask the child to subscribe to a Junior ISA. Result: tax-free growth for the child; no IHT issues if exemption used.
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Example 2 — Premium Bonds bought but not transferred (£10,000): Donor keeps bonds in their NS&I account but intends child to benefit. Risk: prizes and capital remain part of donor’s estate for IHT; transfer registration recommended.
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Example 3 — Large gift before death (£150,000): If given outright and the donor survives 7 years, the gift falls outside the estate for IHT; if death within 7 years, taper relief and potential IHT charges may apply. This is independent of ISA or bond mechanics but influences where to place the capital.
Next steps
Your next steps
- Check the recipient's ISA allowance and confirm they will subscribe any gifted cash into their ISA.
- If gifting Premium Bonds, use NS&I's transfer process and keep confirmation that registration changed to the recipient.
- For gifts that materially change estate value, consult a regulated adviser about IHT and formalising records.