Do You Pay Tax on Premium Bonds Winnings?
Premium Bonds are one of the UK’s most familiar savings products.
Instead of paying a fixed rate of interest, every £1 held in Premium Bonds is entered into a monthly prize draw.
You could win nothing.
You could win a small prize.
Or you could potentially win one of the £1 million jackpots.
That naturally raises a tax question:
If you win money from Premium Bonds, does HMRC take a share?
The answer is straightforward:
Premium Bonds prizes are tax-free.
NS&I confirms that all Premium Bonds prizes are exempt from UK Income Tax and Capital Gains Tax.
How do Premium Bonds work?
Premium Bonds are provided by NS&I, which is backed by HM Treasury.
Rather than paying conventional interest, money is placed into a monthly prize draw.
Every eligible £1 Bond has a chance of winning.
As of the September 2026 draw, NS&I has increased the Premium Bonds prize fund rate to 4.35%, with odds of 21,000 to 1 for each £1 Bond in each monthly draw.
The key point is that the 4.35% figure is a prize fund rate, not a guaranteed interest rate.
Individual returns can be very different.
Are Premium Bonds winnings really tax-free?
Yes.
NS&I states that all Premium Bonds prizes are tax-free.
You do not normally need to pay:
- Income Tax
- Capital Gains Tax
on the prize itself.
This applies whether you win:
- £25
- £100
- £1,000
- £100,000
- £1 million
The amount of the prize does not suddenly make it taxable.
Do Premium Bonds prizes use your Personal Savings Allowance?
No.
This is one of the main differences between Premium Bonds and an ordinary savings account.
Interest from a normal savings account can potentially use your Personal Savings Allowance.
Premium Bonds prizes do not.
That means winning £2,000 from Premium Bonds does not use up £2,000 of your savings allowance.
This can make Premium Bonds particularly interesting to people who already earn substantial taxable savings interest elsewhere.
What if you are a higher-rate taxpayer?
The prizes remain tax-free.
A higher-rate taxpayer generally has a smaller Personal Savings Allowance than a basic-rate taxpayer.
But because Premium Bonds prizes sit outside that calculation, the same prize has the same tax treatment regardless of whether the winner is:
- A basic-rate taxpayer
- A higher-rate taxpayer
- An additional-rate taxpayer
This can make the tax-free nature of Premium Bonds more valuable as your marginal Income Tax rate increases.
A simple example
Suppose you have £50,000 available to save.
Normal savings account
If the account paid 4% annually, it could produce approximately:
£2,000 interest
Depending on your other income and available allowances, some of that interest could be taxable.
Premium Bonds
If you happened to receive £2,000 of Premium Bonds prizes during the same year:
£2,000 would be tax-free.
But there is an important difference.
The savings-account interest may be predictable.
Premium Bonds winnings are not.
The prize fund rate is not what you personally earn
This is probably the biggest misunderstanding about Premium Bonds.
A prize fund rate of 4.35% does not mean that someone holding £10,000 will receive £435 during the year.
The 4.35% is used to determine the overall amount available for prizes across Premium Bonds holders.
Your personal return depends entirely on which of your Bond numbers are selected.
You could earn:
- 0%
- Less than the prize fund rate
- Around the prize fund rate
- Much more than the prize fund rate
A small number of people will win very large prizes.
Others may receive nothing.
What are the current odds?
From the September 2026 draw, the odds are 21,000 to 1 for every £1 Bond in each monthly draw.
That means someone with more Bonds has more individual entries in the draw.
For example:
- £1,000 held = 1,000 eligible £1 Bond numbers
- £10,000 held = 10,000
- £50,000 held = 50,000
But there is still no guaranteed return.
How much can you hold in Premium Bonds?
The maximum individual holding is currently £50,000.
You can buy Premium Bonds from £25, and anyone aged 16 or over can buy their own Bonds. Premium Bonds can also be held for children under 16 through the relevant NS&I arrangements.
Any Bond numbers above the £50,000 holding limit are not eligible for prizes.
Are Premium Bonds safe?
Premium Bonds are backed by HM Treasury.
NS&I describes the savings as having 100% security backed by HM Treasury.
That makes them different from ordinary bank savings that rely on the Financial Services Compensation Scheme within its applicable limits.
For someone prioritising capital security, that can be an attractive feature.
Can you lose your original money?
Premium Bonds do not fluctuate in value like investments.
If you hold £20,000 of Premium Bonds, the underlying £20,000 does not fall because stock markets decline.
However, there is another form of risk:
inflation.
If your Premium Bonds generate few or no prizes while prices rise, the purchasing power of the money can decline.
So while your nominal capital is secure, your real spending power is not guaranteed.
Can you withdraw your money?
Yes.
Premium Bonds are not designed as a fixed-term product.
NS&I allows withdrawals without notice or a withdrawal penalty, although it says payments usually take around 3–5 days to reach your bank account.
That means Premium Bonds can offer more flexibility than some fixed-rate savings products.
However, they may not be ideal for money you could need instantly.
When do new Premium Bonds enter the draw?
New Bonds need to be held for a full month before becoming eligible for a prize draw.
For example, Bonds purchased during November would normally first become eligible for the January draw.
This waiting period is worth considering if you plan to move a large amount from an interest-paying savings account.
For a period, the money may not yet be participating in a draw.
Should you choose Premium Bonds over a savings account?
Not necessarily.
Premium Bonds and savings accounts solve slightly different problems.
Premium Bonds may appeal if you want:
- Tax-free prizes
- Capital security
- Easy access
- The possibility of a large win
- To avoid using your Personal Savings Allowance
A savings account may be better if you want:
- Guaranteed interest
- Predictable returns
- Regular monthly income
- Certainty over how much your savings will earn
The decision should be based on the after-tax return and level of certainty you want, not simply the headline prize fund rate.
Premium Bonds can become more attractive for higher earners
Consider someone who:
- Already uses their Personal Savings Allowance
- Holds substantial cash
- Pays higher-rate or additional-rate Income Tax
Additional ordinary savings interest may create further taxable income.
Premium Bonds prizes remain tax-free.
That can make their tax treatment increasingly attractive for people with larger savings balances.
However, tax efficiency does not guarantee a better overall return.
What if you win £1 million?
The £1 million Premium Bonds jackpot is still tax-free.
You would not normally owe Income Tax or Capital Gains Tax simply because you received the prize.
But what you do with the £1 million afterwards could create tax consequences.
For example, if you:
- Put it into a savings account
- Invest it
- Buy a rental property
- Give substantial amounts away
future interest, investment gains, rental profits or estate-planning issues may arise.
The prize itself and the future return generated from it are separate.
What if you give Premium Bonds to someone?
Premium Bonds cannot simply be transferred from one adult holder to another in the same way as cash in a bank account.
If your intention is to make a financial gift, you may need to withdraw money and then gift it separately or use the specific arrangements NS&I offers for children.
Large gifts can also have Inheritance Tax implications.
So the tax-free status of the Premium Bonds prize does not mean every subsequent transfer is irrelevant for tax.
Are Premium Bonds better than an ISA?
Again, neither is automatically better.
A Cash ISA offers:
- Tax-free interest
- A predictable rate where fixed or variable interest is specified
- ISA tax-wrapper benefits
Premium Bonds offer:
- Tax-free prizes
- No guaranteed return
- A chance of much larger winnings
- HM Treasury backing
Someone who values certainty may prefer a Cash ISA.
Someone willing to accept an uncertain return in exchange for the chance of a large prize may prefer Premium Bonds.
Many people use both.
Are Premium Bonds investments?
Not in the usual sense.
They do not provide ownership of:
- Companies
- Funds
- Property
- Bonds traded in financial markets
Your capital is held by NS&I and entered into prize draws.
They are therefore better thought of as a savings product with prize-based returns rather than a conventional investment.
Should your emergency fund be in Premium Bonds?
Potentially, but consider access time.
Premium Bonds offer capital security and withdrawals without penalties.
However, NS&I says withdrawals can take several days.
For an emergency fund, you may prefer to keep at least some money in an instant-access bank account.
You could then hold additional cash reserves in Premium Bonds.
Frequently Asked Questions
Do you pay tax on Premium Bonds winnings?
No. Premium Bonds prizes are tax-free and exempt from UK Income Tax and Capital Gains Tax.
Do Premium Bonds prizes count towards the Personal Savings Allowance?
No. Premium Bonds prizes are tax-free separately and do not use the Personal Savings Allowance.
What is the maximum you can hold in Premium Bonds?
The current maximum holding is £50,000 per person.
What is the Premium Bonds prize fund rate?
From the September 2026 draw, the prize fund rate is 4.35%, variable.
What are the odds of winning Premium Bonds?
From September 2026, the odds are 21,000 to 1 for each eligible £1 Bond in each monthly draw.
Is the prize fund rate guaranteed?
No. It determines the overall prize fund rather than guaranteeing an individual return.
Can you withdraw Premium Bonds whenever you want?
Yes. NS&I allows withdrawals without notice or penalty, although withdrawals normally take several days to reach your bank account.
Final thoughts
Premium Bonds have one significant tax advantage:
Every prize is tax-free.
That can make them particularly attractive if you already pay tax on savings interest or have used your Personal Savings Allowance.
But tax should not be the only consideration.
Compare:
- Guaranteed savings rates
- Premium Bonds prize odds
- Your Income Tax rate
- Cash-access requirements
- ISA availability
- Inflation
- How much certainty you want
Premium Bonds can form part of a wider savings strategy, but they are not a guaranteed substitute for an interest-paying account.
At Merranti Accounting, we help individuals understand how savings, investments and other sources of income interact with their personal tax position.
Contact Merranti Accounting if you would like help reviewing your personal tax position.
Written by Jason Fudge
Managing Director, Merranti Accounting
Jason works with individuals and business owners on financial planning, taxation and longer-term commercial decisions, helping clients understand the financial implications of the choices available to them.
Author image: Use Jason’s existing Merranti headshot.
