Do You have to Declare Investment on Premium Bonds?

Q.

I want to know if i was to invest in premium bonds would I have to declare my investment on my self-assessment form?

I know you don't have to declare any winnings but what about the money you have invested?

A.

Premium Bonds are becoming an increasingly popular investment. In these times of financial uncertainty, many people are rushing to move their money to places in which they are confident it will be safe. National Savings and Investments (NS&I), the organisation that administers Premium Bonds and a selection of other investment vehicles, is amongst the safest institutions in the UK, as your money is 100% guaranteed by the Treasury. Indeed, the attractive nature of these products can be illustrated by the fact that NS&I have been forced to restrict access as a result of an overwhelming amount of new custom.

Premium Bond Advantages

Aside from the security, one of the great advantages of Premium Bonds is their favourable tax status. Premium Bonds are not a particularly attractive investment from an income point of view, as their interest rates are very low. However, they operate on a lottery basis, and there is always the chance that you could make a large winning and therefore increase the effective interest rate by a significant amount. As you state, all Premium Bond winnings are free from Income Tax, meaning that you keep 100% of the amount that you win. However, there seems to be some confusion regarding their status as an investment for other purposes.

Capital Gains Tax

As a self-assessment tax payer you are obliged to give details of your investments. This is for savings tax and Capital Gains Tax purposes. The treatment of your Premium Bonds will depend on whether you are a basic or a higher rate tax payer. If you are a higher rate tax payer and you receive net interest (that is, tax is deducted before you receive your interest), then you do indeed have a responsibility to declare your investment on your self assessment. If you are a basic rate tax payer, no tax liability will arise and it will therefore have no effect on your self assessment; as has been mentioned, Premium Bonds are not chargeable to Capital Gains Tax.

National Savings and Investments give some basic guidance regarding the tax treatment of each of their products on their website. You may wish to give them a call to discuss your individual situation and put your mind at ease.