Don’t forget that new rules which came in to effect on 6th April 2015, now mean that spouses and civil partners will be able to inherit ISA pots on death and continue to benefit from the tax advantages they previously shared.
Whilst claims can only be made from 6th April 2015, the rules will apply to ISA savers who died on or after 3rd December 2014.
Under the old rules, the annual cash subscription limit meant that the surviving spouse or civil partner could only invest inherited savings in their own ISA up to that annual limit and the majority of the deceased’s ISA tax advantages would therefore be lost on death. The surviving spouse would have to spend a number of years trying to put the deceased spouse’s ISA investment into their own ISA – years in which the income or capital gain would be taxed.
Now surviving spouses and civil partners will be permitted to save an additional amount in an ISA, on top of their usual allowance for that year – provided for by way of a one-off allowance up to the value of the deceased holder’s ISA at the date of death. This can be used to top up an existing ISA or to open a new ISA with a provider of your choice.
For widows or widowers inheriting £60,000, this could mean a tax-saving of around £500 per year.
Interestingly, spouses and civil partners will be entitled to the additional allowance even if the ISA assets are left to someone else in the Will, or are used to meet expenses from the estate. No one else will be entitled to benefit from the allowance, even if they have inherited the ISA. This means that if, for example, an ISA investment is left to an adult child on the death of a parent, the surviving spouse will still get the additional one-off allowance but the child who inherited the investment will not. Therefore, depending on the amount inherited by the child, it could take several years for them to drip-feed the inheritance back into an ISA. If the surviving spouse does not have other assets to put into an ISA to use up their additional one-off allowance, it will be wasted.
The rules will allow ISAs to be transferred ‘in specie’ – this means that stocks and shares ISAs can simply be transferred to the surviving spouse or civil partner without all the investments having to be sold and reinvested in a new ISA. This will allow investors to switch assets across without having to incur costs involved in selling and repurchasing the investments.
There are time limits within which the claim must be made – 3 years for cash subscriptions and 180 days if the ISA is transferred in specie.
Spouses should be aware that the new rules do not represent an opportunity to save on Inheritance Tax but in order to benefit from this new tax-break, it might be wise for couples to review their Wills. If you would like further information, please contact a member of the Wills and Probate department at Southerns on 01282 422711.