DIY Investor Magazine
/
March 2016
42
CHANGES TO ISA INHERITANCE RULES
Changes to ISA inheritance rules implemented in
April 2015 brought an end to what had been seen as
an unfair and punitive ‘death tax’, with up to 150,000
people a year set to benefit by inheriting their partner’s
ISA tax benefits.
Before then, upon the death of an ISA account holder,
the account was closed and the tax-free status of the
investment terminated; the new regulations reverse this
as long as certain conditions are satisfied.
Now, the value of the deceased’s ISA passes to the
surviving partner as an extra allowance in that tax
year; for example if someone were to pass away
leaving an ISA valued at £50,000, a surviving partner
in the current tax year would have an ISA allowance of
£65,240 – the 2015/16 annual ISA allowance of £15,240
plus an inherited allowance of £50,000.
The extra allowance is called the additional permitted
subscription (APS) allowance and it is not dependant
on the surviving spouse inheriting the actual money or
investments held within the ISA.
To claim, the surviving spouse or civil partner must
have been living with the deceased account holder at
the date of death and not be separated by a court order
or a deed of separation.
‘Living together’ is extended to circumstances where
one of the couple is in a care home because of illness
or infirmity in the same way that the married couples
allowance operates; those whose spouse or civil
partner died on or after December 3rd 2014 are eligible
If the deceased held more than one ISA, these are
combined to create an overall sum which the surviving
partner can claim in addition to their own ISA allowance
for the tax year.
Additional ISAs are thereby opened above the current
limits and any additional subscription may be made
with the ISA manager who maintained the deceased’s
account or one to whom the APS has been transferred.
Those who wish to capitalise on the increased ISA
allowance must do so within three years of their
partner’s death, or 180 days after completion of their
partner’s estate being fully administrated.
Spouses will be entitled to the allowance even if the ISA
assets are left to someone else in a will or are used to
meet expenses from the estate and may make a lump
sum or regular payments into the account which may
be a Cash ISA or a Stocks and Shares variant.
The APS is not transferrable to another party even
if they have received the assets from the ISA; the
allowance cannot be applied to a Junior ISA.
The new freedom presents couples with fresh estate
planning opportunities as there is clearly an advantage
for the surviving spouse to gain the tax advantages
of their partner’s ISA, although the use of tax-efficient
trusts to lock away money for children or other future
inheritors may offer still greater advantages than an
ISA.
ALTHOUGH THE USE OF TAX-EFFICIENT TRUSTS
TO LOCK AWAY MONEY FOR CHILDREN OR OTHER
FUTURE INHERITORS MAY OFFER STILL GREATER
ADVANTAGES THAN AN ISA.
