Inheritance tax waived for scandal hit NS&I customers

Jacob Grattage, Reporter, Business & Accountancy Daily. Croner.

After NS&I admitted it ‘misplaced’ £367m in customer savings, interim chief executive and ex-HMRC boss Sir Jim Harra issues apology with planned tax exemption.

Pensions minister Torsten Bell has confirmed there will be a ‘full inheritance tax exemption’ for affected accounts and holdings.

The move was confirmed in a written statement from the pensions minister yesterday (19 May).

Bell said: ‘I am confirming that there will be a full inheritance tax exemption for the holdings of the remediation population affected by the NS&I tracing error which are returned to the estates to which they rightly belong.’

At the end of March, the government backed National Savings & Investments (NS&I) said that it had effectively lost customer savings from accounts and premium bonds amounting to £476m but could not explain how this happened.

This resulted in thousands of families being left unable to claim the money of deceased relatives held in the bank. The Treasury then appointed Sir Jim Harra, former CEO of HMRC to the bank’s top job on an interim basis. 

Now action is being taken to resolve the issue as quickly as possible.

The pensions minister also said there would be some additional relief for executors and personal representatives.

‘To further ease the administration of estates, the personal representatives or executors will not be liable for any income tax ordinarily due in their role on interest accrued before death or in the administration period,’ wrote Bell.

‘HMRC is working with NS&I to ensure that executors, personal representatives and beneficiaries do not incur any unnecessary administrative burdens or costs where tax is not due.’

NS&I Bank plans to reimburse legal costs incurred by personal representatives and executors, stating: ‘When we write with details of their payment, we will set out the process for submitting a request for reimbursement of reasonable legal costs.’

NS&I will begin contacting the estates of affected deceased customers by post with the first letters going out next week to those who were not repaid money from all of their NS&I accounts following a bereavement claim due to the ‘error’.

Now the final figure for the error has been reduced from £476m to £367m, after the records were rechecked.

The original estimation was 37,500 bereavement claims, with a total value of £476m, but this has now been reduced slightly to 34,000 estates.

The bank stated: ‘As the review has progressed, this number has reduced and is likely to reduce further, but it did not give any reasons why this error occurred in the first place.

But there is still no clarity about what went wrong at the bank, or why the accounting error was made.

The minister confirmed interim chair of NS&I and former HMRC boss Jim Harra will head up a ‘wider review into the background to the tracing problem and what lessons must be learned’.

‘This will report before the summer recess and be shared with the chairs of the Treasury and Public Accounts Committees,’ he added.

Interim head of NS&I, and former HMRC chief Sir Jim Harra also apologised, saying: ‘I apologise to everyone who has been affected by this issue. Beginning the process of repaying these funds is a key step in putting things right.’

Statement on Bereavement Claims, National Savings & Investments, 19 May 2026