Are savings held in an ISA or Premium Bonds treated differently on death? Which gives faster cash to pay probate and Inheritance Tax (IHT)? Which allows the cleanest transfer to beneficiaries? For people in England comparing tax‑free and low‑risk savings, those questions determine whether money is available when executors need it most.
This guide concentrates solely on Inheritance & Estate Planning: ISA vs Premium Bonds. It sets out current, practical steps, live links to official guidance, worked examples and templates for executors and nominees. All figures are indicative and noted where they are time‑sensitive.
Key takeaways: what to know in 1 minute
- ISAs remain tax‑free but form part of the deceased's estate for IHT: ISAs are included in estate value and can increase IHT liability unless removed by exemptions or transferred under spouse rules. See HMRC guidance: gov.uk: Inheritance Tax.
- Premium Bonds are also part of the estate, but NS&I nominations speed access: Premium Bonds must be dealt with by NS&I; an expression of wish or nomination can make payment faster but does not change IHT treatment. NS&I details: NS&I premium bonds.
- Liquidity matters for executors: ISAs held by a deceased can sometimes be transferred to a surviving spouse using Additional Permitted Subscriptions (APS) — indicative rules apply — while Premium Bonds are redeemable for cash quickly once NS&I has ID and probate where required.
- Nominations differ: ISA nominations are advisory to providers; NS&I nominations are processed under its procedures. Always confirm with the provider and keep nomination documentation updated.
- Plan for documentation and valuation: Executors should gather account statements, NS&I bond serials, nominations and the deceased’s will to avoid delays and unexpected IHT bills.
How ISAs and Premium Bonds affect inheritance tax liability
How ISAs are treated for inheritance tax
ISAs remain tax‑efficient while the holder is alive: interest, dividends and capital gains inside an ISA are free of UK income tax and capital gains tax. On death, the value of the ISA at the date of death usually forms part of the deceased's estate for IHT purposes and therefore can be liable to IHT if the estate exceeds the nil‑rate band.
- The nil‑rate band (example figure) and residence nil‑rate band can affect liability — check the current thresholds at gov.uk. Figures are current at time of writing and subject to change.
- Surviving spouse/civil partner rules (APS): The tax benefit of a deceased's ISA can be preserved for a surviving spouse in registered ISAs via Additional Permitted Subscriptions (APS) under certain conditions. APS lets the survivor subscribe an amount equal to the deceased's ISA value (subject to provider rules) in addition to their annual ISA allowance. This does not remove the ISA value from the deceased's estate for IHT; it is a separate mechanism to preserve tax wrappers for the survivor.
How Premium Bonds are treated for inheritance tax
Premium Bonds are issued by NS&I and each bond is an asset owned by the bondholder. On death:
- The cash value of the Premium Bonds at the date of death normally forms part of the deceased's estate for IHT.
- Prize‑winning status does not affect valuation: unclaimed prizes due at date of death are part of the estate value.
- A valid nomination or expression of wish with NS&I can streamline payment to a beneficiary but does not exempt the bonds from IHT.
Which assets count when HMRC calculates IHT
HMRC assesses the total estate value at the date of death. Both ISAs and Premium Bonds are normally included. Deductions (debts, funeral costs, gifts within allowable limits) and applicable reliefs or exemptions are applied before calculating IHT. For official detail see gov.uk: IHT overview.
Using Premium Bonds and ISAs for estate liquidity planning
Why liquidity matters at death
Executors need quick access to cash to: pay funeral costs, preserve assets, settle IHT and continue household bills. Illiquid holdings force executors to sell other assets under unfavourable conditions.
Practical differences in speed and access
- ISAs: Providers may allow transfer of ISA funds to a surviving spouse under APS or transfer of cash to beneficiaries once the executor produces probate or confirmation. Some ISA providers allow provisional access to funds pending probate if a short‑form grant or small estate rules apply — this varies by firm.
- Premium Bonds: NS&I typically redeems Premium Bonds to cash once ID and the necessary paperwork are provided. NS&I's processing is usually faster if a nomination exists; where probate is required the process waits for probate documents. Confirmation procedures: NS&I probate guidance.
Worked example: a basic liquidity plan
- Estate contains: £150,000 ISA, £50,000 Premium Bonds, house equity and personal items.
- IHT nil‑rate band: £325,000 (indicative) → estate below threshold, no IHT due.
- Executor still needs cash for costs: redeeming Premium Bonds (£50,000) can provide immediate cash once NS&I accepts the claim; ISAs may require additional processing. Therefore, holding a portion in Premium Bonds improves short‑term liquidity.
Nominating beneficiaries: ISAs' nominations versus NS&I procedures
ISA nomination process and limits
ISA nominations (often called a "nomination of beneficiary") are a formal record held by the ISA provider indicating who the holder prefers to receive the ISA proceeds. Important points:
- Nomination is not legally binding; the nominee is usually paid by the provider but the ultimate distribution must follow the will and probate rules.
- Action on death: providers typically require the death certificate and grant of probate (or letters of administration) before paying out.
- APS and spouse options: if a surviving spouse uses APS, they still need provider cooperation and documentary proof.
NS&I procedures for Premium Bonds
NS&I offers an Expression of Wish or nomination for Premium Bonds. Differences:
- NS&I treats a nomination as strong guidance and has streamlined processes for paying nominated persons directly — but legal entitlement depends on the will and probate.
- NS&I can speed payment where the claim is straightforward and the nominated person is verified.
- If no nomination exists, NS&I pays into the estate for executors to distribute.
What happens if no nomination exists
Absence of a nomination means standard probate steps — all affected providers will require the grant of probate (or letters of administration) before transferring funds. That can delay access for weeks or months.
Trusts, wills and holding Premium Bonds in estate plans
Holding Premium Bonds in trust
Premium Bonds can be held in trust structures. Common points:
- If bonds are placed into a bare trust, the beneficiary is the legal owner and the bonds are outside the settlor's estate for IHT only if the trust arrangement is correctly established and genuinely transferred before death.
- Trust tax rules and IHT: trusts have their own tax consequences and periodic charges; specialist advice is recommended before moving Premium Bonds into a trust.
Including Premium Bonds in a will
A will can identify Premium Bonds by their serial numbers and direct the executor to redeem them and distribute proceeds. Clear labelling (bond holder’s name, bond numbers, nomination details) reduces ambiguity.
Executor steps when premium bonds are involved
- Locate the bond numbers and any nomination records.
- Contact NS&I with the death certificate and will/executor ID: NS&I contact.
- If held in a trust, provide trust deed and relevant ID.
Tax efficiency comparison: tax‑free ISA returns versus Premium Bond prizes
How returns differ in structure
- ISAs (cash or stocks & shares): returns are known or predictable (interest rate or expected dividend/growth). For cash ISAs, interest rates are explicit; for stocks & shares ISAs, returns vary with investment performance.
- Premium Bonds: returns are random prizes funded via a published prize fund rate. The average expected return is roughly the prize fund rate but many holders will get lower or higher results; the distribution is skewed (many small winners, few large ones).
Illustrative numeric comparison (indicative rates)
Assume (indicative at time of writing):
- Cash ISA rate: 3.5% AER
- Premium Bonds prize fund rate: 1.4% (prize fund rate varies—check NS&I page)
Example for £50,000 held for one year:
- Cash ISA at 3.5% → expected interest ≈ £1,750 (tax free within the ISA)
- Premium Bonds at prize fund 1.4% → expected prize value ≈ £700 (tax free but variable; many holders will get 0 prizes that year)
Conclusion: in this illustrative scenario, a cash ISA provides a more reliable return and predictable estate valuation. Premium Bonds offer prize potential and liquidity advantages but lower expected returns based on the published prize fund rate.
Risk profile and IHT angle
Both are included in estate value for IHT. However, the unpredictability of Premium Bonds means estate valuation is straightforward (face value) but potential unclaimed prizes must be considered. ISAs present a clear market valuation.
Valuing ISAs and Premium Bonds for probate
- Use statements dated close to the date of death to set valuation figures for probate. Providers can supply a valuation on request for the estate administration.
- For Premium Bonds, list bond serial numbers and request a redemption valuation from NS&I covering the date of death.
Documents executors should assemble
- Original will and death certificate.
- Latest provider statements for ISAs and Premium Bonds.
- NS&I bond list or holder number and any nomination/expression of wish.
- ID and contact details of executor(s) and beneficiaries.
- Records of gifts, loans, or pledged assets.
Step‑by‑step checklist for transferring savings on death
- Register the death and obtain multiple certified copies of the death certificate.
- Locate will and contact solicitor or probate service.
- Contact ISA providers and NS&I using the provider links: provide death certificate and executor ID.
- Request valuations at date of death and ask whether provisional payments are possible while probate is processed.
- If eligible, allow surviving spouse to use APS where applicable — confirm with provider and HMRC guidance.
- Pay IHT, obtain receipt, and complete distributions under the will.
Advantages, risks and common mistakes
✅ Benefits / when to use each
- Use ISAs when a predictable, tax‑efficient return and clear valuation are priorities for estate planning.
- Use Premium Bonds when short‑term liquidity, quick redemption (with nomination) and capital security with prize upside are priorities.
- Combine both: a mixed approach preserves access to cash for executors (Premium Bonds) while keeping core savings in ISAs for predictable tax‑efficient returns.
⚠️ Errors and risks to avoid
- Failing to update nominations — causes delays and disputes.
- Assuming nominations override wills — they do not; legal distribution follows the will and probate rules.
- Overlooking paperwork timing — some providers require probate; others may release funds sooner if the estate is small and documentation suffices.
- Relying on an assumed APS without checking provider rules — APS processes and documentation differ by ISA manager.
Quick estate flow: from death to distribution
📜 **Step 1** → Register death & get death certificates
🏦 **Step 2** → Contact ISA providers & NS&I (provide certificates)
⚖️ **Step 3** → Apply for probate (if required)
💷 **Step 4** → Get valuations & pay IHT (if due)
🔁 **Step 5** → Distribute funds per will or nominations
Table: quick comparison — ISA vs Premium Bonds for inheritance planning
| Feature |
ISA |
Premium Bonds |
| IHT treatment |
Included in estate value for IHT |
Included in estate value for IHT |
| Speed of access after death |
Variable — provider may require probate; APS may help for spouse |
Often faster if nomination exists; NS&I redemption once documents provided |
| Predictability of returns |
Predictable (interest/growth) depending on product |
Unpredictable – prize distribution is random |
| Nomination effect |
Advisory nomination — provider pays but must respect legal will |
Expression of wish speeds NS&I payments but does not alter legal entitlement |
Frequently asked questions
Can a surviving spouse inherit an ISA tax‑free directly?
A surviving spouse can often use Additional Permitted Subscriptions (APS) to preserve the tax status of a deceased's ISA, but the deceased’s ISA value still forms part of the estate for IHT. Check provider rules and HMRC guidance: gov.uk: ISAs.
Do Premium Bonds avoid probate if there is a nomination?
A valid nomination with NS&I can speed payment to the nominated person, but probate may still be required depending on the estate size and other assets. NS&I’s process is described at NS&I probate guidance.
How are unclaimed Premium Bond prizes handled after death?
Unclaimed prizes due at the date of death are part of the estate. Executors should ask NS&I for a prize history and include any due prizes when valuing the estate.
Should Premium Bonds be placed in trust to avoid IHT?
Trusts are complex. Moving Premium Bonds into a trust can change tax position and may attract IHT charges on the trust. Legal and tax advice is recommended before taking action.
What documents do executors need to claim ISAs and Premium Bonds?
Executors should gather the death certificate, grant of probate (if required), latest account statements, bond serials and any nomination paperwork. Providers will specify exact requirements.
Is the prize from Premium Bonds taxable for inheritance tax?
Prize money itself is tax‑free to the recipient for income tax purposes, but the bonds’ value is included in the estate calculation for IHT.
Where to find official guidance on probate and estates?
The gov.uk pages on wills, probate and inheritance tax are the primary official resources: gov.uk: wills, probate and inheritance.
YOUR next step:
- Obtain certified copies of the death certificate and locate the will, ISA statements and NS&I bond records.
- Contact ISA providers and NS&I using the links in this guide to request valuations and confirm nomination status.
- If estate liquidity is a concern, prioritise redeeming Premium Bonds (if nominated) or seek a short‑term lender while probate is arranged.
Alan White
With over 15 years of experience helping individuals navigate savings and investment options, this author provides clear, practical guidance on ISAs, Premium Bonds, and alternative savings products. Every article on ISA vs Premium Bonds draws on real-world experience, offering actionable advice, risk awareness, and strategies to help readers make informed decisions, plan for savings goals, and understand tax and legal implications. The goal is to empower readers to confidently manage their money and maximise their financial growth.