Are Premium Bonds tax-free for US citizens?

Premium Bonds are NS&I's prize savings. The money earns no interest; each £1 Bond goes into a monthly draw instead, with prizes from £25 to £1 million, and you can cash Bonds in for what you paid whenever you like. NS&I is backed by HM Treasury, and its customer agreement describes the Bonds as UK government securities.

A US citizen living here can hold them

NS&I sells Premium Bonds to anyone aged 16 or over with a UK bank account, up to £50,000 each. Its customer agreement sets no test of who can buy beyond age: nothing in it turns on nationality or on where you pay tax.

NS&I's warning about the United States is about living there. It says US gaming and lottery laws may make it impossible or impractical to hold Premium Bonds while in the US, and that anyone abroad who is allowed to hold them has to apply by post. That becomes a question on the day you move back; it has no bearing while you live in the UK.

The two tax treatments

No ruling, so the conservative reading

The IRS has issued no ruling or guidance on UK Premium Bonds. Without one, the conservative reading takes a prize for what it most resembles: money won in a draw. The IRS says gambling winnings are fully taxable and names winnings from lotteries and raffles among them, so on that reading each prize goes on your US return as ordinary income in the year you win it, added to your other income and taxed at the same rates.

Nothing the IRS has published settles the question either way, so it could take another view, and so could a specialist looking at your own facts.

Nothing withheld, nothing to credit

NS&I pays prizes free of UK tax and withholds nothing, so a prize arrives with no tax paid on it anywhere. The US tax is yours to report and pay. The IRS expects every gambling winning on Form 1040, through Schedule 1, including winnings no payer has reported on a Form W-2G, and says they may mean paying estimated tax on them during the year.

The reliefs that usually keep UK income from being taxed twice do nothing here. The foreign tax credit credits foreign tax you have paid, and the UK charged none. The foreign earned income exclusion covers pay for work, and the IRS classes gambling winnings as unearned income. Nor does the US-UK tax treaty help a US citizen: its saving clause lets the US tax its own citizens as if the treaty did not exist, and none of the exceptions to it reaches a prize. So the US tax on a prize is paid in full. How the credit and the exclusion work on the rest of a return is on filing a US tax return from the UK.

What can reduce it

Only gambling losses, and only for some filers. The IRS allows them only if you itemise deductions on Schedule A and kept records, and never beyond the winnings you report; from the 2026 tax year a 2025 change to the law lets only 90% of those losses count. The IRS and the Treasury estimate that 15% or fewer taxpayers itemise, and for everyone else a prize is taxed whole.

The Bonds themselves supply no loss to deduct. NS&I repays every Bond at the £1 it cost, and the interest the money might have earned elsewhere was never wagered, so it is not a loss either.

What it does to the prize fund rate

NS&I quotes the prize fund rate, 4.35% as of Sep 27, 2026, as the rate that funds tax-free prizes. For a UK saver that is the comparison that flatters the Bonds, since a tax-free rate beats a taxable account paying the same. For a US taxpayer the rate is not a tax-free return. On the conservative reading it is a pre-tax figure, the same kind of number as a savings account's AER. It also sets the size of the whole draw, not what any one holding will win.

Whether the Bonds still pay more after tax than an ordinary savings account depends on the rest of your return. Interest on an ordinary account can bear UK tax, which the foreign tax credit sets against the US bill; a prize bears none.

Form 8938 counts them; the FBAR is unsettled

Premium Bonds count towards Form 8938 whichever way you read them. The form covers accounts with a foreign financial institution, and it also covers foreign securities held outside any account, which is what NS&I's customer agreement says the Bonds are. None of the form's exceptions fits them. For someone living abroad the form is due once all such assets together pass $200,000 at the end of the year or $300,000 at any time, and double that for a married couple filing jointly.

The FBAR is less clear, and no primary source settles it. FinCEN's instructions define a financial account broadly, as a savings, deposit or other account kept with a financial institution or with anyone performing its services, and NS&I lists Premium Bonds among its savings accounts. Against that, the customer agreement calls them government securities, and the IRS's own comparison of the two forms puts a foreign security held outside an account on Form 8938 but not on the FBAR. FinCEN has published nothing on Premium Bonds. Whether yours belong on it is a question for a cross-border specialist; the FBAR page sets out the $10,000 line and how the total is counted.

NS&I's other accounts, and every provider that opens a savings account for a US citizen, are on the savings accounts page; everything NS&I sells is on its own page.

Sources

• NS&I, Premium Bonds
• NS&I, Premium Bonds key features and customer agreement
• NS&I, saving with us when living abroad
• GOV.UK, what you pay Capital Gains Tax on
• IRS Topic no. 419, gambling income and losses
• IRS, Internal Revenue Bulletin 2026-19, wagering losses
• IRS Topic no. 856, foreign tax credit
• IRS, what is foreign earned income
• IRS, tax inflation adjustments for 2026
• US-UK income tax treaty, Articles 1 and 22
• Protocol amending the treaty, 2002
• IRS instructions for Form 8938
• IRS, comparison of Form 8938 and FBAR requirements
• FinCEN, FBAR filing instructions
• 31 CFR 1010.350, reports of foreign financial accounts