Your ISA on death – all is not lost!

New legislation has provided clarity on the rules around passing your ISA to your spouse on death. But what does happen to your ISA when you die?

Up until April 2015, your ISA would have automatically lost its tax-free status, resulting in your surviving partner having to pay tax on any interest or returns earned on it.

With many couples savings into their ISAs from joint income, this rule was seen as particularly unfair, especially went impacting ISA savings accumulated over many years.

Legislation brought in from April 2015 allowed the surviving partner to, theoretically, inherit the ISA funds in a tax efficient way. In practice, the ISA assets still lose their tax-free status, but the surviving partner is given an ‘Additional Permitted Subscription’ (APS) allowance, a one off ISA allowance that is equal to the value of the ISA at the date of the holder’s death. This APS won’t be counted against the normal ISA subscription limit but will be added on to the survivors own annual ISA limit.

For example, if the deceased partner had ISA savings of £60,000, the surviving partner would have an ISA allowance of £80,000 for that tax year (the value of deceased partners savings plus the £20,000 ISA allowance of surviving partner in 2017/18 tax year).

This results in the tax efficiency of the deceased ISA being maintained when the surviving partner uses their APS allowance.

The latest legislation clarifies the rules around any growth in the investments between the date of death and the date the administration of the estate is completed, ensuring that this growth is wrapped up into the APS allowance.



More Posts

Chadwicks Bimonthly Magazine November – December

Welcome to our November/December 2023 edition. As you sail into your 50s, it becomes pivotal to consider your financial strategy. Life has likely found a steady rhythm by now. Children have probably taken flight, becoming

Chadwicks Bimonthly Magazine July – August 2023 

Welcome to our July/August 2023 edition. In this issue, a comfortable retirement is a common financial goal, and contributing to a pension is essential to achieving it. Although retirement may appear distant at the moment,

Chadwicks Bimonthly Magazine May – June 2023 

Welcome to our May/June 2023 edition. In this issue, Chancellor Jeremy Hunt’s first proper Budget 2023, on Wednesday 15 March, brought some welcome but unexpected changes to pension tax, the most significant of which was

Send Us A Message