US-UK · Journal
Premium Bonds and the FBAR: What US Persons in the UK Must Report
Premium Bond prizes are tax-free in the UK but not in the US. What a US person in Britain reports on the FBAR and Form 8938 — and what to do if they haven't.
Premium Bond prizes are tax-free in the UK but not in the US. What a US person in Britain reports on the FBAR and Form 8938 — and what to do if they haven't.
Premium Bond prizes are free of UK Income Tax and Capital Gains Tax, but that exemption is a UK-only promise. The United States does not recognise the NS&I wrapper, so prizes won by a US citizen or green card holder living in Britain are generally taxable income on a US return — and the holdings themselves may have to be reported to the US Treasury. Whether they do depends on the aggregate value of every foreign account you hold, not on any single product.
National Savings and Investments (NS&I) is the United Kingdom's state savings institution, backed by HM Treasury. Its best-known product is Premium Bonds: you buy numbered £1 bonds — currently from a £25 minimum up to a £50,000 maximum holding — which earn no interest at all. Each bond is instead entered into a monthly prize draw run by a random number generator called ERNIE, with prizes ranging from £25 to £1 million. The rest of the NS&I range is conventional: Direct Saver, Income Bonds, Guaranteed Growth and Guaranteed Income Bonds, Green Savings Bonds, the Direct ISA and the Junior ISA all pay ordinary interest.
To a British saver none of this is remarkable: Premium Bonds are the default home for a grandparent's gift or the cash a household keeps to hand. For an American in Britain they are a quiet compliance problem, because the tax-free prize has no standing whatsoever in US law.
NS&I states that Premium Bond prizes are free from UK Income Tax and Capital Gains Tax. Read the words closely. That exemption is granted by the UK Parliament, it applies to UK taxes, and it stops at the UK border.
The United States taxes its citizens and lawful permanent residents on worldwide income wherever they live. A US person in London therefore sits inside two tax systems at once, and the second has never agreed to honour the first one's wrappers. It is the same mechanism that catches ISAs. NS&I says as much itself, in a line most savers scroll straight past: if you live outside the UK, or have dual citizenship, there may be other taxes that apply to your savings.
No IRS pronouncement names Premium Bonds. What exists instead is a well-settled principle: prizes are income. IRS guidance states plainly that "Gambling winnings are fully taxable and you must report the income on your tax return", that such income includes "winnings from lotteries, raffles, sports betting, horse races, and casinos", and that you must report winnings "including winnings that aren't reported on a Form W-2G".
A Premium Bond prize sits naturally in that family — a draw, a random outcome, a cash prize. Most experienced cross-border preparers therefore bring prizes into income on the US return for the year received, though practitioners differ on the fine detail of whether a prize is better presented as other income or as gambling-type winnings. What is not seriously in dispute is that the money does not become invisible to the IRS merely because HMRC has waived its own claim.
Two consequences follow, and both catch people out.
There is nothing to credit. The foreign tax credit relieves double taxation by crediting foreign tax actually paid. Pay no UK tax on a prize and you have no credit, so the US takes its share in full. The much-loved UK exemption does not reduce your global tax bill at all — it hands the revenue to Washington instead of London.
Losses are of little help. US rules permit gambling losses only for taxpayers who itemise, and only up to the gambling income reported. Premium Bonds generate no losses in that sense anyway: the cost of a non-winning month is forgone interest, not a stake lost.
For a typical holding the return-side tax is modest. The reporting side is where the real exposure lives.
Here it pays to be careful, because the honest answer differs by product. The FBAR — FinCEN Form 114 — requires a US person to report foreign financial accounts. The IRS's own manual defines a reportable financial account to include a "bank account, such as a savings deposit, demand deposit, checking, time deposit (CD), or any other account maintained with a financial institution or other person engaged in the business of banking", plus securities accounts, insurance or annuity policies with a cash value, and pooled funds.
The professional position is the unglamorous one: inventory everything, and let the preparer decide what goes on the form. Listing a holding that arguably need not be listed costs you nothing, because the FBAR is an information report rather than a tax. Omitting an account that should have been listed creates penalty exposure that was entirely avoidable. Disclosure is cheap; silence is not. We apply the same discipline across the whole foreign asset inventory, as set out in our guide to which foreign accounts and pensions belong on an FBAR.
One reassurance while we are here: NS&I products are deposit-style or prize-draw holdings rather than pooled funds, so the punitive PFIC regime that afflicts UK unit trusts and investment trusts is generally not the concern. Unreported income and unreported accounts are — a smaller and far more fixable problem.
The most common misunderstanding has nothing to do with Premium Bonds specifically. It is the belief that the threshold applies account by account.
It does not. The IRS states the test as whether "the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported". Three things follow.
The FBAR is filed with FinCEN separately from your tax return, due 15 April with an automatic extension to 15 October that requires no application. Supporting records for each account should be kept.
Form 8938 is the FATCA reporting form. It is filed with your income tax return, covers specified foreign financial assets, and carries far higher thresholds that depend on where you live and how you file. For taxpayers living abroad: more than $200,000 on the last day of the tax year or more than $300,000 at any time during it (single or married filing separately), and $400,000 or $600,000 respectively on a joint return. For those living in the US the figures are $50,000 / $75,000 and $100,000 / $150,000.
The two regimes overlap without replacing one another. The IRS is unambiguous: "The filing of Form 8938 does not relieve you of the separate requirement to file the FBAR if you are otherwise required to do so, and vice-versa." Many accounts appear on both, and the practical differences are set out in our comparison of Form 8938 and the FBAR.
If you have held Premium Bonds for years and never mentioned them to a US preparer, you are in ordinary company rather than exceptional trouble. The product produces no annual tax certificate and is described everywhere in Britain as tax-free, so nothing about owning it prompts a question. That is precisely why it is missed.
The more useful observation is what the discovery tends to reveal. Someone who did not know their Premium Bonds were reportable usually did not know their ISA was reportable either, may never have filed FBARs for the current account their salary lands in, and quite often has not filed US returns at all for some of the years they have lived in Britain. The Premium Bonds are rarely the problem; they are the thread that pulls the whole picture into view.
That wider position is what the IRS amnesty routes exist to resolve. Where returns are missing and the failure was genuinely not deliberate, the streamlined procedures allow a defined set of back years and back FBARs to be filed with penalty relief — see our guide to streamlined filing for US expats. Where the returns are fine but the FBARs were never filed, a narrower fix usually applies instead, described in our guide to a missed FBAR. Choosing between them is a judgement call and the wrong moment to guess: filing back FBARs alone, when returns are also missing, can foreclose the better route.
None of this is cause for alarm. Premium Bonds are a modest holding for most people, the US tax on a year of prizes is usually small, and the reporting gap is fixable through routes the IRS built for exactly this situation. It does require someone to look at the whole picture at once — every account, every year — rather than patching one form and hoping.
At Next Tax Source this is standard private-client work: we build the account inventory first, decide product by product what is reportable and what is arguable, and quantify the actual US cost before you commit to anything. A licensed CPA or Enrolled Agent reviews and signs off every filing that leaves the firm. If you hold NS&I products and have never reported them, book a confidential consultation.
This article is general information, not tax advice, and does not create a professional relationship. Thresholds, product terms and reporting rules change, and the treatment of a particular holding depends on your own facts; confirm the current position with a licensed professional before acting.
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Reviewed by a CPA / Enrolled Agent. Last updated: 9 September 2026.
Official sources: IRS — Report of Foreign Bank and Financial Accounts (FBAR) | IRS — Comparison of Form 8938 and FBAR requirements | IRS — Topic no. 419, Gambling income and losses | NS&I — Premium Bonds | NS&I — How tax-free saving works