ISA rules have recently been overhauled but a recent survey has shown that 77% of British adults have limited knowledge of them. Savvy investors know of the income tax and capital gains tax benefits of ISAs but what happens to those benefits upon death? Unfortunately, the tax benefits of an ISA die as well – unless the deceased was married or in a civil partnership. New rules now enable a spouse or civil partner to inherit the ISA with the tax benefits intact.
Under the old rules ISA savings could be passed on to those entitled to the estate but the ISA lost its tax efficient benefits. From April 2015 a spouse or civil partner is now entitled to keep ISAs without the loss of the tax shelter.
Anyone whose spouse or partner died after 3 December 2014 is eligible for a one-off additional ISA allowance which is equal to the amount that was held in the deceased spouse’s ISA at the time of death. This is known as an additional permitted subscription or APS allowance.
For example, if the ISA holding was £50,000 the surviving spouse will then be entitled to put up to £65,240 into their ISA for the 2015/16 tax year. This represents the annual allowance of £15,240 plus the value of the deceased’s ISA at death. This can be achieved by receiving the existing ISA, or investing an equivalent amount into a new ISA.
Lee Young, head of the Wills & Tax team states, "The tax efficiency of ISAs has been improved by this welcome change in the rules."
Our Wills & Tax Team, based in Christchurch, also cover Bournemouth, Poole and the New Forest. For a free initial chat, please call 01202 499255 and Lee or a member of the team will be happy to discuss any questions that you may have.