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UK Premium Bonds and British expatriates
By Paul Montague, Partner, Blevins Franks
928 433 411 | canaryisles@blevinsfranks.com | www.blevinsfranks.com
Premium bonds have been a popular savings arrangement in the UK for decades, and millions of people across 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 and become resident in Spain, the tax incentives provided by these savings in the UK fall away and they become subject to Spanish taxation.
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).Their tax-free status is also 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 to deposit earnings in?
- How much tax will you pay on any winnings in Spain?
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 in Spain?
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 in Spain though. If you win one of the prizes, you’ll share your good fortune with your local tax authority.
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, which reach up to 50.5% in the Canary Islands.
Some expatriates mistakenly think that since premium bonds and ISAs are UK investments, they do not need to be declared in Spain. In fact, they do, and with today’s global automatic exchange of information, the Spanish 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
There are very tax-efficient investment vehicles available to residents of Spain. 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 Spanish taxation, the interaction between them, 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 in Spain (for example, what currency should they be in?); your future expectations (will you stay in Spain 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 which were built up over the years and are no longer suitable for them today. You need personalised advice from a Spain based cross-border adviser like Blevins Franks which provides holistic advice covering investments, tax efficiency and estate planning.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.
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