06 November 2015 #Private Client
ISAs are tax efficient wrappers that shelter investments from income tax and capital gains tax. Previously, all monies or investments held in an ISA wrapper had to be transferred out of that wrapper on death before being transferred to a beneficiary. That beneficiary then only had their personal ISA allowance available to them when reinvesting the funds previously held in the deceased’s ISA.
The government has recognised that many couples save from joint income and have changed the rules from the current tax year onwards. The changes apply for deaths on or after 4 December 2014 and their effect is to give the surviving spouse or civil partner an ‘additional permitted subscription’ equal to the value of their late spouses ISA fund – provided they were living with their spouse at the time of death.
This additional allowance is only available for a surviving spouse or civil partner and must be used within either 3 years of death or (if later) within 180 days of the administration period ending.
Specific processes need to be followed and it is important to liaise with each ISA manager involved throughout the process to ensure that all requirements are complied with. Extra care should be taken before arranging for any stocks and shares ISAs to be sold unless the surviving spouse or civil partner is certain that they do not want them.
The availability of this additional permitted subscription does not change the treatment of a deceased’s ISA on death. When notified of death the ISA manager still has to remove the ISA from its wrapper from the date of death.