The Government has confirmed that estates affected by the National Savings & Investments (NS&I) tracing error will receive a full inheritance tax exemption on funds returned through the remediation programme, providing significant relief for thousands of bereaved families across the UK.
Speaking in Parliament on 19 May, The Minister for Pensions, Torsten Bell confirmed that holdings returned to estates impacted by the NS&I tracing failures would not be subject to inheritance tax. The announcement forms part of a wider effort to compensate families after errors in NS&I’s bereavement claims process left millions of pounds undiscovered and unpaid.
The issue emerged after NS&I identified long-running problems within its account tracing system. In some bereavement cases, the search process failed to locate all savings products held by deceased customers, meaning estates did not receive the full value owed to them. NS&I has since apologised and introduced a revised tracing process designed to prevent similar failures in future.
According to the latest figures released by NS&I, up to 34,000 estates are expected to be affected, with approximately £367 million due to be repaid. The repayments will begin from 27 May 2026 and are expected to continue in phases until the first half of 2027.
The inheritance tax exemption is intended to ensure families are not financially disadvantaged by mistakes outside their control. In his parliamentary statement, Torsten Bell said the exemption would apply specifically to “the holdings of the remediation population affected by the NS&I tracing error which are returned to the estates to which they rightly belong.”
In addition to the inheritance tax relief, executors and personal representatives will not be liable for income tax on interest accrued before death or during the administration period where those sums relate to the tracing error repayments. HM Revenue & Customs is working alongside NS&I to minimise administrative burdens for beneficiaries and executors.
NS&I has also confirmed that affected estates will receive compensation above the original holdings value. Payments will include either the interest accrued since the error occurred or the Bank of England base rate plus one percentage point, whichever is higher. The measure is designed to ensure estates are fully compensated for the delay in receiving funds.
Families do not need to make a claim immediately, as NS&I will contact executors and personal representatives directly where holdings of £10 or more are identified. The organisation has stated that letters will be issued weekly as the remediation programme progresses.
The scandal has prompted wider scrutiny of NS&I’s bereavement handling procedures. Sir Jim Harra, the organisation’s interim chief executive, is leading a broader review into how the tracing failures occurred and what lessons can be learned. Findings from the review are expected before Parliament’s summer recess.
For affected families, the inheritance tax exemption represents an important safeguard during an already difficult period. Estate administration can be complex and emotionally challenging, particularly when historic financial errors come to light years later. The Government’s decision aims to remove additional tax complications while helping ensure the rightful beneficiaries receive the money owed to them.