Premium bonds

You bank statement will show where the money came from.

Unless you are wealthy, in which case you need an accountant, I don't think you need worry about the tax man.

Premium bond prizes are tax free. Unless you are under investigation for evasion of income tax or VAT, HMRC are not going to be looking at your bank account(s).

Presumably winnings are credited to your account as a receipt from NS&I.

If you were under investigation, then it would have the power to examine your bank account(s) and would be much more interested in where the £50,000 to buy the bonds came from.

Premium Bond winnings can be of interest to HMRC in calculating inheritance tax if you gift the them.

Broadly, there is an provision which allows an individual to give away a total of £3000 worth of gifts each tax year without them being added to their estate if they die within seven years making of the gift.

Say you gave away £4000 one year, some of which came from a PB win, then died within seven years of making the gift, £1000 would be added back to the value of your estate and could be taxed.

Thank you for the advice.

I presume the tax folk get the information on my income (State Pension + tiny work-related pension + pension relating to late OH) directly from the pension providers. I never have anything to fill in.

I guess they will know about the wins - Big Brother is aive and well!

No, They won't know. This explains how interest is dealt with.

www.gov.uk/apply-tax-free-interest-on-savings

Scroll down to near the bottom. It says:

If you’re not employed, do not get a pension or do not complete Self Assessment, your bank or building society will tell HMRC how much interest you received at the end of the year. HMRC will tell you if you need to pay tax and how to pay it.

Employers and pension providers have always provided HMRC with details of occupational pensions. They receive the same information that you see on your P60s.

DWP tell HMRC what state pension someone is entitled to as this is taxable income and needs to be taken into account when calculating tax codes.

If you check your Personal Tax Account online you can see what information it holds on you. Set one up if you don't have one. It will involve some security checks to confirm your identity.

www.gov.uk/log-in-register-hmrc-online-services

If you already have an account, it should show what estimates HMRC have made for each source of income for the current year. This helps it to allocate the basic personal allowance in the best way.

It's worth checking this as HMRC won't know the terms of your occupational pensions schemes i.e. what statutory increases the funds are obliged to pay - so they will be making estimates.

Doing this is particularly import for people who have a number of very small pensions when no one pension added to their state pension exceeds the basic tax allowance (currently £12750). You can end up paying too much tax over the course of the year.

If you believe the pension income(s) that HMRC are showing for 2023/24 are incorrect, you can alter them online so that it has accurate information to calculate your tax codes for 2024/25 - which they will be doing anytime soon.

Pittcity

You bank statement will show where the money came from.

Unless you are wealthy, in which case you need an accountant, I don't think you need worry about the tax man.

It says PBs on the bank statement.
Even a £1m win is tax free, not that I know from personal experience.

The tax boss don't have access to your bank account (do they? 😲)

The million is tax free but any interest earned on it won't be....hence the need for financial advice.
We won nothing this month 😪

Thanks for all advice. I will go online. By the way, I was not thinking that HMRC had access to my bank account!

Good. I mentioned it as there is a lot of concern at the moment about proposed DWP surveillance of bank records - there's a separate discussion on this.

Also, just to say that Premium Bonds are perhaps not the best way to invest your money, even more so now that the prize fund is going down in March. I'm sure you know all the arguments.

Lastest moneysavingexpert piece on this:

www.moneysavingexpert.com/news/2024/01/nsi-premium-bond-rate-march/

It looks like you were a median prizewinner last year.

If you lined up the around 1.2 million people who own £50,000 in Premium Bonds, in order of those who win the least to those who win the most, the median winner is the one in the middle. The median winner is the person having average luck.

With the prize fund going down in March 2024, the first time since December 2020, that median number goes down to - around £1950.

Here's Martin Lewis (see the video) explaining more. This is a few years old now and interest rates are now considerably higher but the same principles apply:

www.moneysavingexpert.com/savings/premium-bonds/

Premium Bonds were a decent bet during the 14 years following the 2008 financial crash. Interest rates sunk to and remained at record lows. Since autumn 2022, bank rates are much better.

By comparision, last year, my return on £50,000 from a one-year fix on a cash ISA stack was £2750 tax free and guaranteed.