¿Te preocupa cómo los ISAs y las Premium Bonds afectarán la herencia y el impuesto de sucesiones? Many people weigh tax efficiency against probate hassle and payout speed. This guide focuses strictly on Inheritance & estate planning: ISAs vs Premium Bonds to give clear, practical steps for executors, nominees and beneficiaries.
Key facts and immediate actions appear first so readers can decide quickly, followed by detailed procedures, examples and checklists for estate planning and claims.
Key takeaways: what to know in 1 minute
- ISAs remain part of the deceased’s estate for IHT unless transferred under the spouse/civil partner rules; they do not automatically pass outside probate.
- Premium Bonds are held by NS&I and usually require probate or a valid claim; nominees may speed a payout but the asset can still form part of the estate.
- Bereavement rules and Additional Permitted Subscription (APS) allow surviving spouses to preserve ISA tax status in many cases — act quickly and follow provider forms precisely.
- Timing matters: ISA transfer or APS windows are strict; NS&I payout times depend on documentation and whether bonds are registered or held in a nominee arrangement.
- Practical first step: locate wills, nomination forms and recent statements; notify providers and seek probate instructions from the executor before moving funds.
How ISAs and Premium Bonds affect inheritance tax
ISAs (cash, stocks & shares, Lifetime ISAs) and Premium Bonds are commonly marketed as "tax-efficient," but their status for inheritance tax (IHT) is distinct from income or capital gains tax.
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ISAs: subject to IHT as they form part of the deceased’s estate on death. The ISA wrapper protects income/capital gains during life but does not exempt the capital from IHT on death. In many cases the value must be included in the estate valuation for IHT purposes (current rules indicative at time of writing). Transfers to a spouse/civil partner under the bereavement allowances may preserve tax benefits and reduce IHT consequences.
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Premium Bonds (NS&I): the underlying cash is part of the estate. Premium Bonds are essentially a saving instrument where the capital is not lost but invested in prizes. The bond holdings are valued at face value and included in the estate for IHT. If a nominated person exists, that nomination affects the payout process but not automatically the IHT treatment.
Practical note: for IHT valuation the relevant figure is the value at the date of death (or alternate valuation date if appropriate). For Premium Bonds that is the face value of the bonds; for ISAs it is the account value reported by the provider.
Passing on ISAs: nominations and bereavement allowance
What nominations do and don’t do
- Nomination forms let an ISA holder indicate a preferred person to receive funds; however, a nomination is not legally binding in all cases — it depends on the provider and whether the account is held in a form that allows beneficiary designation.
- For a properly registered nomination with the provider, NS&I and many banks honour it and may pay directly to the nominee, but the estate may still require inclusion for IHT.
Spouse/civil partner bereavement rules and APS (practical timeline)
- When a spouse or civil partner dies, the surviving partner may be entitled to an Additional Permitted Subscription (APS) to preserve the ISA tax wrapper. This creates a special allowance that effectively replaces the deceased’s ISA for the spouse only.
- APS must usually be claimed within a fixed period (check provider forms; commonly 3-12 months from notification). Act quickly: missing the window risks losing the wrapper.
- APS rules vary by ISA type (Cash, Stocks & Shares, Innovative Finance, Lifetime ISA). For Lifetime ISAs specific restrictions apply; specialist advice is advisable.
Practical documents to locate for ISAs
- Latest ISA statements (provider contact details and account numbers)
- Completed nomination of beneficiary forms held by the provider
- Marriage/civil partnership certificate (for spouse APS claims)
- Death certificate (original or certified copy)
Probate, trusts and Premium Bonds payout process
How NS&I handles Premium Bonds on death
- If a nomination is lodged and valid, NS&I can usually pay the nominated person directly without probate for small balances, but larger values may require probate or letters of administration.
- If there is no nomination, the bonds form part of the estate and NS&I will usually require probate before releasing funds.
- NS&I’s procedures are document-driven: expect to submit a certified death certificate, will or grant of probate (if applicable), and ID for claimants.
Trusts and Premium Bonds
- If Premium Bonds are held in a trust, they are treated according to the trust deed. The trustee has legal ownership and must distribute proceeds per trust terms. Tax and IHT treatment follow standard trust rules; professional advice is strongly recommended for complex trusts.
Executors: valuing Premium Bonds for probate
- Use the face value of Premium Bonds on the date of death (NS&I statements show holdings). If a prize has been awarded but not yet paid, note the prize entitlement and check NS&I guidance.
Tax implications for beneficiaries: ISAs versus Premium Bonds
ISAs for beneficiaries
- Beneficiaries who receive an ISA as part of an inheritance receive cash or investments that have been sheltered from income and CGT during the deceased’s life, but they do not inherit the ISA wrapper (except via spouse APS rules). The beneficiary must place funds into their own ISA allowance (subject to annual limits) or hold outside an ISA.
- If transferred to a surviving spouse under APS, the tax advantages can be preserved for the spouse without immediate tax consequences.
Premium Bonds for beneficiaries
- Premium Bonds pay prizes rather than interest; winners do not pay UK income tax on prizes. For beneficiaries, prizes remain tax-free, and the capital returned is simply the original stake.
- However, Premium Bonds do not carry extra tax benefits on inheritance and cannot be transferred into a beneficiary’s ISA without encashing and then subscribing within the beneficiary’s ISA allowance.
Capital treatment and means-testing
- For means-tested benefits or residential care calculations, both ISAs (cash or stocks & shares holdings) and Premium Bonds are treated as part of capital once they are included in the estate or paid out. Local authority rules may vary; check current guidance.
Accessibility and payout timing for ISAs and Bonds
Timing and accessibility are key differences when planning an estate distribution.
- ISAs: accessible to executors after probate; some providers permit provisional releases on production of supporting documents. Where APS applies, transfers to a surviving spouse can be relatively quick if the provider’s forms are completed promptly.
- Premium Bonds: NS&I’s payout process is document-heavy. Small nominated sums may be paid without probate; larger sums often require a grant. Typical timescales range from a few weeks (with nomination and full documentation) to several months (if probate is needed).
Typical timelines (indicative at time of writing)
- ISA transfer to spouse via APS: 2–8 weeks from notification (provider-dependent)
- ISA cash-out by estate: 1–8 weeks after probate, depending on provider processes
- Premium Bonds payout with valid nomination and no probate: 1–6 weeks
- Premium Bonds payout requiring probate: 4–12 weeks or longer (complex estates take longer)
Practical steps for passing ISAs and Premium Bonds
- Secure the original will and key documents.
- Obtain certified copies of the death certificate (providers often require originals or certified copies).
- Notify ISA providers and NS&I without encashing or transferring anything until executor instructions are clear.
- Check for nominations, APS eligibility and any outstanding provider forms.
Step-by-step for executors (short checklist)
- Confirm whether the deceased had a valid nomination with the ISA provider or NS&I.
- Request valuation statements dated on or close to date of death.
- Apply for a grant of probate if required for the size/value of estate or provider policy.
- For spouse APS, submit the marriage/civil partnership certificate and provider APS form within the allowed period.
- If distributing to beneficiaries, keep clear records of transfers and valuations for IHT reporting.
Passing ISAs and Premium Bonds: quick process
📍 Locate documents → 📞 Notify providers → 📝 Submit probate/APS → 💸 Payout or transfer
Step 1 • Find will, statements, nomination forms
Step 2 • Get certified copies of the death certificate
Step 3 • Contact ISA provider & NS&I (do not encash)
Step 4 • Apply for probate if required, claim APS if spouse
Table comparison: ISAs vs Premium Bonds (inheritance focus)
| Feature |
ISA |
Premium Bonds (NS&I) |
| IHT treatment |
Included in estate value for IHT |
Included in estate value for IHT |
| Automatic transfer outside probate |
No (but spouse APS may preserve wrapper) |
No (nomination may allow payout without probate for small amounts) |
| Tax for beneficiaries |
No income/CGT while in ISA; wrapper not inherited (except APS for spouse) |
Prizes tax-free; capital returned; cannot be moved into ISA without encashment |
| Typical payout speed |
2–8 weeks with correct documentation; longer if probate needed |
1–12 weeks depending on nomination and probate |
Advantages, risks and common mistakes
✅ Benefits / When to use each
- Use ISAs when tax-efficient growth during life matters and preserving the spouse APS option is important.
- Use Premium Bonds if capital preservation with tax-free prizes is preferable and the holder values prize potential and security with NS&I.
- For estate planning combine both in different proportions: ISAs for tax-efficient investments and Premium Bonds for liquid, low-risk capital that beneficiaries can claim.
⚠️ Risks and errors to avoid
- Failing to update nominations (providers may pay nominees but only if forms are current)
- Missing APS claim windows for spouses/civil partners and losing the chance to preserve the ISA wrapper
- Encashing or transferring funds without executor authority — this can complicate probate and breach legal duties
- Assuming Premium Bonds automatically bypass probate — they may still form part of the estate if no valid nomination exists
Frequently asked questions
Can ISAs be transferred outside probate?
No. ISAs normally form part of the estate and require probate unless a specific provider process (such as APS for spouses) applies; nominations may help but do not guarantee bypassing probate.
Do Premium Bonds avoid inheritance tax?
No. Premium Bonds are included in the deceased’s estate for IHT valuation. Prizes are tax-free, but the capital count toward IHT thresholds.
What is the bereavement or spousal ISA allowance?
The Additional Permitted Subscription (APS) allows a surviving spouse or civil partner to effectively inherit ISA tax benefits; it must be claimed with the provider using the correct documents within the allowed period.
How long do NS&I Premium Bonds payouts take after death?
With a valid nomination and full documentation payouts can be a few weeks; if probate is needed expect several weeks to months depending on the estate complexity.
Executors should follow the will and not encash assets without authority. Often providers require probate for release; some may offer temporary access with documentation.
Can beneficiaries put cashed Premium Bonds into their own ISA?
Yes, but only by encashing the bonds and subscribing within the beneficiary’s ISA allowance and annual subscription limits.
What documents are typically required to claim ISAs or Premium Bonds?
Death certificate, will/probate grant (if required), ID for claimants, nomination forms, marriage/civil partnership certificates (for APS), and provider-specific forms.
Your next step:
- Locate will, recent provider statements and any completed nomination forms.
- Contact ISA providers and NS&I to notify them and request their death-claim forms and APS guidance.
- If unsure about IHT exposure or trust structures, consult a solicitor or tax adviser specialising in estates before transferring or encashing assets.
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.