Premium Bonds winners in the UK are being advised to carefully manage their prize money to avoid unexpected tax bills.
While the winnings themselves are tax-free, depositing them into savings accounts can generate taxable interest if personal savings allowances are exceeded.
Basic rate taxpayers can earn up to £1,000 in interest tax-free, while higher-rate taxpayers are limited to £500, and additional rate taxpayers receive no allowance.
For example, placing a £100,000 prize into an account with a 4% interest rate could yield £4,000 in interest, of which £3,000 may be taxable, resulting in a £600 tax bill.
Financial expert Aaron Peake recommends reinvesting winnings into additional Premium Bonds to maintain tax-free status and increase chances of future wins.
Other strategies include paying down high-interest debts, investing in ISAs, or contributing to pensions for long-term tax efficiency.
Cash ISAs and stocks and shares ISAs allow for tax-free growth, with annual contribution limits of £20,000.
For those planning retirement, pension contributions may also offer tax relief.
The advice comes amid growing awareness of how financial decisions post-win can impact overall tax liability.
As interest rates rise and savings yields improve, understanding the nuances of tax allowances becomes increasingly important for savers.
The guidance aims to help winners make informed choices and preserve the full value of their windfalls.
While the winnings themselves are tax-free, depositing them into savings accounts can generate taxable interest if personal savings allowances are exceeded.
Basic rate taxpayers can earn up to £1,000 in interest tax-free, while higher-rate taxpayers are limited to £500, and additional rate taxpayers receive no allowance.
For example, placing a £100,000 prize into an account with a 4% interest rate could yield £4,000 in interest, of which £3,000 may be taxable, resulting in a £600 tax bill.
Financial expert Aaron Peake recommends reinvesting winnings into additional Premium Bonds to maintain tax-free status and increase chances of future wins.
Other strategies include paying down high-interest debts, investing in ISAs, or contributing to pensions for long-term tax efficiency.
Cash ISAs and stocks and shares ISAs allow for tax-free growth, with annual contribution limits of £20,000.
For those planning retirement, pension contributions may also offer tax relief.
The advice comes amid growing awareness of how financial decisions post-win can impact overall tax liability.
As interest rates rise and savings yields improve, understanding the nuances of tax allowances becomes increasingly important for savers.
The guidance aims to help winners make informed choices and preserve the full value of their windfalls.
