Under ‘Additional Permitted Subscription’ (APS) rules, introduced in 2015, a surviving spouse or civil partner can inherit a deceased spouse or partner’s ISA savings, without sacrificing the tax shelter it affords.
Previously, ISAs could be passed on to beneficiaries named in a will or via laws of intestacy but lost the tax efficient ‘wrapper’.
Individuals can only invest an annual maximum of £20,000 in an ISA and therefore couldn’t reinvest their inheritance in the ISA, losing the advantage of investing in a tax-free fund.
Despite availability of the tax-break, a freedom of information request obtained by financial provider Zurich revealed that only 21,000 people had utilised it in 2017-18 (4,000 fewer than in 2016-17).
A further change to the rules last April now means that interest paid on ISAs of those deceased on or after 6 April 2018 is also tax-free.
Interest paid on ISAs of those deceased prior to this date, whilst the estate is wound-up, remains taxable. Prior to the changes, an ISA lost its tax-free status at date of death.
Surviving partners must apply for the APS, to the provider of the deceased’s ISA or another who will accept the subscription within the later of, three years from the date of death or 180 days of completion of the estate’s administration. The APS is equal to the amount inherited.
Providers are not obliged to accept APS allowances; one possible reason for low uptake, alongside complex rules and lacking awareness amongst savers and providers.
We can help you to protect your savings as part of a tax-efficient strategy. For professional advice on this and other tax and accountancy-related matters, please contact me or one of our team by calling 01767 315010.