Premium bonds have been a popular savings arrangement in the UK for decades, and millions of people of all ages own at least a few of them. You may have a sentimental attachment to yours but, if you own a fair amount of them, would you be better off reinvesting the capital elsewhere?
It’s easy to hold onto what’s familiar and Britons feel comfortable with premium bonds and ISAs. But besides the possibility of improving returns, once you leave the UK , the tax incentives provided by these savings in the UK fall away and they become subject to local taxation in your new country of residence.
Is it worth keeping premium bonds?
Premium bonds feel part of the fabric of British savings – it’s likely your parents and grandparents owned some and your first bonds may have been a gift from them. Your capital is 100% protected by the Treasury, which is comforting, and you have the enticing possibility of winning a million pounds (even if you know it’s an incredibly slim probability). And their tax-free status is a compelling incentive.
Premium bonds were launched over 65 years ago to encourage more people to save. Today, over 24 million people have a combined £124 billion invested in them. Every month, two lucky owners win the £1 million prize.
Does all this mean you should keep yours? Especially if you own many premium bonds? As an expatriate, there are three issues to consider:
- Are you missing out on the opportunity to earn better returns? What are the chances you’ll win a big enough prize to make it a good investment?
- Do you have a UK bank account in which to deposit earnings?
- How much tax will you pay on any winnings in your country of residence?
Investment returns
A single bond costs £1. Each has an equal chance of winning a monthly prize but, obviously, the more you have the more chances you have to win. The minimum amount you can buy is 25 and the maximum is 50,000. Between a couple you may potentially have up to £100,000 invested in them. Although they are a form of savings product, whether you earn anything from them or not is essentially a gamble and down to luck.
Premium bonds do not provide any automatic interest earnings or capital growth. This means their value will be eroded over time by inflation, unless you happen to win big enough to compensate for inflation over the years you’ve owned them.
What are the chances of winning big? The ‘prize rate’ of premium bonds was reduced from 4.65% to 4.4% in March 2024. A feature in The Times explains that this equates to a one in 21,000 odds of winning anything from a single bond. The odds of scooping the £1 million top prize from a single bond in one draw is one in 59,082,205,208. Even if you own £50,000 in bonds, your chances of winning are one in 96,839.
Martin Lewis’ MoneySavingExpert’s site compares the odds of winning the £1 million prize from a single bond to winning the jackpot from one National Lottery ticket – it’s a one in 60 billion chance for premium bonds versus a one in 45 million for the lottery.
Can expatriates own premium bonds?
Yes, you can, but it’s not that simple.
As the National Savings & Investments (NS&I) website explains, while they do have some customers outside the UK, you need a UK bank or building society account. It can only make payments to, or receive payments from, a UK account. And this must be in your name.
The problem here is that, since Brexit, many UK banks have closed accounts belonging to EU residents because they don’t have the necessary regulation.
How premium bonds are taxed abroad
One key attraction of premium bonds is that they have always been tax-free in the UK – they are not tax-free if you live elsewhere though. If you win one of the prizes, you’ll share your good fortune with your local tax authority.
Spain
As a Spanish resident, any premium bond winnings are taxed as general income. They are added to your general income for the year and taxed at the scale rates of tax of up to 47% in Andalucía, 49.5% in the Balearic Islands, 50.5% in the Canary Islands, 50% in Cataluña, 45.9% in Madrid, 47% in Murcia and 54% in Valenciana.
Portugal
Once you become a resident of Portugal, any gains you receive from Premium Bonds will be taxed as investment income. Portugal applies a flat rate of tax at 28% on investment income, though residents can opt for it to be treated as general income and taxed at the scale rates of income tax.
France
Although gambling winnings are tax-free in France, this does not apply to premium bond prizes since the investment is not at stake. Any winnings are treated as investment income and taxed at the flat rate of 30% (including social charges), reduced to 20.3% if you have Form S1. Lower-income households can opt for investment income to be taxed at the scale rates of income tax.
Some expatriates mistakenly think that since premium bonds and ISAs are UK investments, they do not need to be declared in their country of residence. In fact, they do, and with today’s global automatic exchange of information, your local tax authorities will be informed about your UK investments, so make sure you declare everything correctly on your annual tax returns.
Tax-efficient wealth management in Spain
Residents of Spain, France, Portugal, and other parts of Europe have access to very tax-efficient investment vehicles. With specialist professional advice, you could enjoy extremely favourable tax treatment on your capital investments. Speak to an adviser who can guide you on both UK and local taxation, their interaction, and tax planning opportunities.
Taxation is not the only reason to review your savings and investments, however.
Consider whether they are suitable for your life as an expatriate (for example, what currency should they be in?); your future expectations (will you remain abroad or return to the UK in future?); your objectives (are you looking for income or growth?); your time horizon and, importantly, your risk tolerance.
Too many people have portfolios that were built up over the years and are no longer suitable for them today. You need personalised advice from a locally based cross-border adviser like Blevins Franks, which provides holistic advice covering investments, tax efficiency, and estate planning.
To find out how we can help you, contact Blevins Franks today.
These views are put forward for consideration purposes only as the suitability of any investment is dependent on the investment objectives, time horizon and attitude to risk of the investor. The value of investments can fall as well as rise, as can the income arising from them. Past performance should not be seen as an indication of future performance.
