Premium solution for tax bill?

By THIS IS MONEY
Updated:

 

My friend and I both have potentially large inheritance tax liabilities. She thinks she has heard that Premium Bonds are not counted as part of your estate for inheritance tax purposes and is suggesting we each buy £20,000 worth as a way to reduce our estates. I not sure she is right. I think I have heard that your heirs can get hold of money invested in premium bonds quickly after you die, without having to wait for probate, but I'm not sure if that is true either. What is the real position? Mrs JW, Surrey.

A spokesman for National Savings says: With regard to inheritance tax, your friend is not correct. If a person dies owning National Savings products (including Premium Bonds), they will form part of that person's estate.

It means that when the Inland Revenue assesses that person's estate for inheritance tax, holdings of National Savings products will be taken into account. This means the Inland Revenue would include any Premium Bond holdings that you and your friend had.

On the second point, Premium Bonds worth more than £5,000 cannot be cashed in by an executor or beneficiary unless probate is produced. So if you or your friend were to buy £20,000 as suggested, your executors would need to obtain probate before any sums were paid out.

Most watched Money videos