Inheritable ISA Allowance13th November 2015 10:00 am Leave your thoughts
A number of people are asking us about changing their Wills to take advantage of the new inheritable ISA allowance.
If you already know about ISAs (or if you don’t want to know about ISAs), skip down to “The answer” – otherwise read on.
The background is that every adult is allowed to invest a certain amount each year in Individual Savings Accounts (ISAs), which are free from Income Tax and Capital Gains Tax.
Many people use their ISA allowance in full each year and, over a period of years, can build up many tens of thousands of pounds in these tax-free ISAs.
It used to be the case that when someone died, their ISA allowance died with them. If that person was one of a married couple (or civil partnership), the loss of that tax-free allowance could mean a real drop in income for the surviving spouse (or civil partner).
To address that problem the rules have now been changed – when one of a married couple dies after 2nd December 2014, a surviving spouse effectively inherits the first spouse’s ISA allowance.
The steps needed actually to take up the extra allowance are complex. If you are interested in the detail, there is a summary below.
However, the punch line is that you do not need to change your Will for your spouse to qualify for this.
If you die owning ISAs, your spouse becomes entitled automatically to an extra ISA allowance (equivalent to the value of your ISAs) regardless of what is in your Will. Your spouse does not have to inherit the ISAs themselves – or, indeed, anything at all – from you.
Summary of the new rules
The rules are both complex and are still evolving. We are not qualified or permitted to advise on them except on a generic basis. For advice the application of the rules in your specific circumstances, you should consult your independent financial advisor.
- When your spouse dies, her ISAs will be closed and cashed in the normal way.
- You will acquire an additional ISA allowance (or Additional Permitted Subscription – APS – allowance, in the jargon) with each provider with whom your spouse held an ISA at her death, to the same value as the ISA held with that provider at the time (or aggregate value, if she held multiple ISAs with the same provider).
- If you do not want to use that provider, you will be allowed to transfer the APS allowance to another provider, although it appears that not all providers will accept an APS.
- By the same token, a provider will not be required to accept an APS and, if it will not, it must allow you transfer the APS to another provider.
- It appears that the transfer of an APS to another provider is allowed only once.
- You can use the APS allowance to invest in Cash and/or Stocks and Shares ISAs, regardless of the nature of the ISA or ISAs your spouse held with that provider.
- There is a rigid time limit within which you must either use an APS allowance or lose it forever: three years from the date of death, or 180 days from the end of the administration of the estate, whichever is the later.
- The benefit of an APS allowance cannot be transferred to anyone else; it will be for your personal use during your lifetime, and it will then die with you.
This post was written by Colemans Solicitors LLP