27 Mar 2017
Author: Stephen Breen
When a loved one dies, perhaps the last thing on your mind is what happens to their ISA – but there is a useful tax break that is worth knowing about.
Since April 2015, spouses and civil partners of ISA holders have been able to inherit an extra ISA allowance known as an “Additional Permitted Subscription” (APS). The allowance is equivalent to the value of funds that the Deceased had in their ISAs when they died.
For most surviving spouses/civil partners, this will mean that they can transfer the sums held in the Deceased’s ISAs to a new ISA in their own name, without being subject to any extra taxes. Before the allowance came into effect, the Deceased’s ISAs would have lost their tax-free status.
The funds within the ISA(s) held by the deceased must still be transferred in accordance with the deceased’s Will (or the rules of intestacy, if there was no Will). In other words, the surviving spouse or civil partner is not automatically entitled to the actual money in the ISA(s) – it is only the allowance that they inherit (see examples below).
The inherited allowance may be used for up to 3 years after the data of death, or 180 days after completion of administration of the deceased’s estate where this is longer. The surviving spouse or civil partner can deposit funds either as a lump sum, or as instalments if the individual provider allows.
The allowance will only be available if the Deceased and surviving spouse/civil partner were living together at the date of death unless one party is in a care home (i.e. there must be no deed of separation or other circumstances where the marriage or the civil partnership has broken down). Some other criteria apply – please ask if you would like advice.
How does the Additional Permitted Subscription (APS) work?
The Deceased, Claire, held one ISA worth £15,000, with Nationwide. In her Will, she left the ISA to her spouse, John. John opens an ISA with Nationwide and the Executor arranges for the £15,000 to be transferred into this new ISA. John may still deposit additional funds into this or any other ISA up to the value of his own personal ISA allowance (£15,250 in the 2016/17 tax year, increasing to £20,000 for the 2017/18 tax year).
The Deceased, David, held two ISAs worth £20,000 and £30,000. In his Will, he left both ISAs to his only child, Matthew. The Deceased’s surviving spouse, Anna, still inherits an additional allowance (APS) of £50,000. This means that she can deposit £50,000 of her own funds into an ISA for up to three years after David’s death (or 180 days after David’s Executor has finished administering his estate, in the unlikely event that this is longer). These funds might be from her own savings or her wages, for example. She can also deposit funds each year up to her own personal annual ISA allowance on top (£15,250 in the 2016/17 tax year, increasing to £20,000 for the 2017/18 tax year).
The Deceased, Sarah, held one ISA worth £60,000 with Barclays. This was her only asset. In her Will, she left her ISA to her spouse James. Half of the money in the ISA is used to pay for Sarah’s funeral expenses and debts. James opens a new ISA with Barclays and the Executor transfers the balance of £30,000 funds into the ISA. James can still deposit a further £30,000 of his own funds into the ISA in the three years following Sarah’s death, from his own funds. James can also deposit funds into ISA(s) up to the value of his own personal annual ISA allowance each year.
How to use the Additional Permitted Subscription (APS)
To use the APS, the first step is to ensure that the death of the spouse/civil partner is registered with each ISA relevant provider. This can usually be done by writing to the provider or visiting the branch in person and supplying either the original death certificate or a certified copy.
If the Deceased had a Stocks and Shares ISAs you may find that it was sold by a bank or building society on behalf of other parties, so you may be told you have to notify the relevant provider directly.
Once the death has been registered, you will then need to ask the provider for an APS subscription form and you will need to open a qualifying ISA. This can then be used to transfer the inherited funds (if you were entitled to them) or your own funds, up to the value of the APS you’re your personal allowances.
As noted above, it does not matter whether or not you inherited the actual ISA funds. The funds in the ISA will be distributed in accordance with the Deceased’s Will (or on rules of intestacy). Spouses or civil partners get the allowance, regardless.
If you decide to move to new provider, be aware that not every provider accepts payments in using the APS allowance – you will need to check their terms and ask whether there is a fee to pay for the transfer.