ISA inheritance rule changes

An integral part of your retirement savings

When an investor passes away, the savings in their ISA lose their tax-efficient status, and whoever inherits the ISA investments (often the surviving spouse) starts paying tax on any income or returns received from the investments held within the ISA.

Under the new rules announced by Chancellor George Osborne last year, additional ISA subscriptions are now available to a surviving spouse or registered civil partner where the ISA holder passed away on or after 3 December 2014. This applies whether or not they inherit the deceased’s ISA.

Additional Permitted Subscription

This comes in the form of an Additional Permitted Subscription (APS) ISA allowance (additional to their personal annual ISA), equal to the amount that was held in the ISA on the day the holder died.

These changes mean that the APS ISA allowance is now available to their spouse or registered civil partner, even if they are not resident in the UK.

New investment options

This APS can be invested in either stocks and shares or cash. If you stay with the same ISA provider as your spouse, you can invest the cash value in the investments available to you or use the assets that they held in their ISA as an ‘in specie’ subscription (a transfer of assets from one person to another without those assets being sold), assuming that you inherit those assets.

The additional allowance can also be transferred between ISA providers, but you will need to select from the new provider’s investment options (the in specie option will not be available). However, it is important to note that this additional allowance has to be used within a specific time limit.

Tax-efficient savings

Significantly, these allowances are available whether or not the surviving spouse or registered civil partner inherited the deceased’s ISA assets, so even if a spouse decides to bequeath the investments held within the ISA to an alternative beneficiary – perhaps passing them on directly to children or grandchildren in their will – their surviving spouse will still benefit from the equivalent worth of tax-efficient savings potential.

So while ISAs don’t currently offer the upfront tax relief of pension schemes, the ability to make withdrawals and take a tax-efficient income means they can play a valuable part in retirement planning.

How can we help?

Now that there is arguably much greater flexibility to move money between types of ISA – and the ability to pass the tax savings on to a spouse or registered civil partner – many more investors may choose to make ISAs an integral part of their retirement savings. To discuss the options available to you, please contact Admiral Wealth Management on 01472 357035 or email info@admiral-online.co.uk.

Source data

www.gov.uk

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.