The NS&I lost funds scandal, what bereaved families and executors need to know.
Thousands of bereaved families and executors across the UK could soon discover that money owed to deceased loved ones was never paid to their estate. Following a major review by National Savings & Investments (“NS&I”), it has emerged that administrative errors over several years resulted in assets belonging to deceased customers not being properly identified or released. The issue has raised important questions for personal representatives and beneficiaries alike, particularly around estate administration, tax and the practical difficulties of distributing funds years after an estate has been finalised.
Recent reports confirm that NS&I will soon begin contacting thousands of individuals affected by a significant “lost funds” scandal. NS&I has confirmed that, over several years, errors in its processes meant that not all assets held by deceased customers were correctly identified. As a result, many estates were settled without the full value of the deceased’s assets being paid into the estate for distribution to beneficiaries under the terms of the deceased’s Will or, where there was no Will, under the rules of intestacy.
It is currently estimated that around 37,500 estates have been affected, with claims expected to total up to £476 million in funds that were either not identified at the time NS&I was notified of a customer’s death or should have been paid to the personal representatives sooner.
NS&I has advised that all affected estates with holdings of £10 or more will begin to be contacted from 27 May, with a target of completing the process by 2027. Payments are expected to begin within the next few months.
The affected holdings will also be adjusted to account for interest accrued since the error occurred, or the Bank of England base rate plus one percentage point — whichever is higher.
Personal representatives, who have a duty to ensure that all tax liabilities of the deceased’s estate are properly dealt with, including Inheritance Tax and Income Tax, will welcome confirmation from the Minister for Pensions on 19 May that there will be a full Inheritance Tax exemption for holdings affected by the tracing error. This means that where an estate was taxable on death, the additional funds paid by NS&I will not trigger a further Inheritance Tax liability.
Similarly, personal representatives will not be liable for Income Tax on any interest that accrued before death or during the administration period.
However, executors and administrators should be aware that any additional funds recovered will still form part of the deceased’s estate and must therefore be distributed correctly in accordance with the Will or the rules of intestacy. This could create practical complications where estates have long since been finalised, particularly if beneficiaries have since died, lost capacity or cannot now be traced.
Although NS&I’s remediation programme is a welcome step, the scale of the issue highlights how administrative failings can cause significant additional stress, delay and cost at an already difficult time for grieving families. It also reinforces the importance of maintaining accurate financial records and seeking professional advice when administering an estate.
If you receive correspondence from NS&I regarding additional funds owed to an estate, it is important to take advice promptly to ensure the funds are dealt with correctly and any legal or tax implications are properly addressed.
The Sydney Mitchell Solicitors Private Client team has extensive experience advising executors, administrators and beneficiaries on complex estate matters. If you have concerns about an estate you are administering or need support in dealing with an NS&I claim, contact our team today for clear, practical advice and expert guidance.
