Life After Death – The Lesser Known Benefits of ISAs

Nature Floating Flying Flower Growth Dandelion

As of 6th April 2017, the annual ISA allowance in the UK rose to £20,000. With this dramatic increase, the previous contribution level having been set at an annual maximum of £15,240, ISAs have once again been brought into the spotlight from a saving and planning perspective.

Here we look at a couple of the lesser known facts surrounding ISAs – particularly in relation to their uses and benefits following the death of an ISA account holder.

Inheriting an ISA

Under the previous rules ISA savings could be passed on to beneficiaries named in a Will or through the rules of intestacy, but automatically lost the tax-exempt ‘wrapper’ status enjoyed during life.

The new rules, brought in on 6 April 2015, allow the surviving spouse of a deceased ISA holder (including a civil partner) to not only inherit the cash from the ISA, but also to then use the funds, or funds from elsewhere, to make additional contributions to an ISA on top of their own annual subscription limit. This is known as an additional permitted subscription (APS).

Unlike a personal ISA allowance, the amount that can be invested via APS does not ‘reset’ at the start of each tax year but rather is a capped amount equivalent to the amount accumulated by the deceased in ISA wrappers prior to their death. The time period for using an APS is restricted to three years following the date of death, or if later, 180 days after the estate has been administered, although the rules differ slightly where an in specie transfer of non cash assets is elected.

APS allowances – what are the rules?

The rules are surprisingly flexible and are available whether or not the surviving spouse inherited the deceased’s ISA assets. So in theory, the ISA itself could be passed on to other family members whilst the spouse still gains the additional permitted subscription allowance up to the total value of the deceased’s ISA upon death.

Additionally, there is no cap on the potential APS allowance – the rules apply irrespective of how much the deceased had managed to save in an ISA.

When it comes to actually using the APS, the funds invested can come from inherited wealth or any other form of cash available to the surviving spouse. The surviving partner can choose where to transfer the inherited savings – either into a cash ISA or a stocks and shares ISA. They can:

  • Keep the money with the original ISA provider
  • Put the money with their own ISA provider
  • Open up a new cash ISA or a new stocks and shares ISA and place the additional subscription there.

It is worth noting that during the period, in which the estate is being administered, the funds from the ISA lose their tax free status and therefore any interest earned on savings will become liable to taxation.

Gresham clients will be well aware of the benefits of saving into an ISA from a long-term planning perspective and particularly the benefits of having a hybrid of pension/ISA pots when it comes to drawing an income for retirement. The death benefits associated with ISAs are lesser known, yet provide a tax friendly means of passing on wealth to a spouse in addition to a potentially substantial further tax free environment for them to use to accumulate wealth. This provides further options for married couples and can come as a particularly welcome bonus to those who are widowed unexpectedly early.

For further information about the rules in relation to inherited ISAs, please contact your usual financial adviser.

Example – Mr and Mrs Jones

Mr and Mrs Jones were cautious spenders and Mr Jones had managed to save £60,000 into ISAs held in his name. Upon his death, it was written into his Will that his ISAs be split between the couple’s two children.

Mr Jones passed away at age 61 on 2nd January 2017. As the estate is fairly straightforward to administer, it is anticipated that Mrs Jones will have until 2nd January 2020 to utilise the additional permitted subscription (assuming a cash subscription).

In theory, Mrs Jones’ total annual ISA contributions could therefore look like this:

2017/18
£20,000 Personal ISA allowance
£30,000 APS allowance
£50,000 Total allowable ISA subscription

2018/19
£20,000 Personal ISA allowance
£10,000 APS allowance
£30,000 Total allowable ISA subscription

2019/20
£20,000 Personal ISA allowance
£20,000 APS allowance (funds must be transferred in by 2nd January 2020, assuming a cash subscription)
£40,000 Total allowable ISA subscription

NB. The amount that can be contributed via the APS can vary each year and can be made via instalments or lump sum payments.

This entry was posted in Financial Planning. Bookmark the permalink. Both comments and trackbacks are currently closed.
  • CPD training for professionals

    Gresham Wealth Management is one of the few financial planning firms in the North West that are registered to deliver CPD training. Committed to supporting fellow professionals with their ongoing professional development and understanding of key financial planning measures, our team have delivered training to over 350 accountants and solicitors in the region. Not only do these sessions help to keep you and your team ‘in the know’ on current legislation, they also help to identify potential benefits to your firm and your clients. Get in touch with us to discuss arranging a tailor made session for you and your team.
  • Keyman Protection

    The death or prolonged illness of a key employee can put your business under financial strain. Keyman insurance compensates a business for the financial loss brought about by death or long term illness of a key employee.

    It provides a valuable cash injection to the business which can help with a potential loss of turnover and/or to provide funds to replace the key person.

  • Shareholder/Partnership Protection

    One of the great risks of a partnership or limited company is that one of your colleagues may die, with their share of the business passing to someone else. That person may have little interest in the business or be unable to meet the requirements of running the business. Equally a partner or shareholder who suffers a serious illness may not want to continue in the business after treatment and look to be compensated for their exit from the business.

  • Personal Injury Trusts

    Without a personal injury trust in place, you can lose entitlement to present and future means-tested state benefits, including local authority contributions to the cost of long-term care. We offer simple, jargon free advice to check if a personal injury trust is required on receipt of a claim, generally at no cost to you.
  • Retirement Planning

    Retirement Planning is a complex area which means different things to different people. How you plan for retirement can be wide and varied, but it must be planned for well in advance.

    You may have existing pension plans in place, like a company pension or personal pension plan or perhaps you’re just starting to save. Whatever your situation, Gresham Wealth Management Ltd can provide the right advice to create a retirement plan that’s tailor-made for you.

  • Ask the Experts…




    captcha

  • Client Testimonials

    I’m really impressed by how responsive you have all been to get this through against such a tight timescale.
    We are both very grateful for the time you spent with us in explaining various options. We certainly feel we now both have a much better understanding of our situation & the decisions which we need to consider moving forward.
    It’s lovely for us to have nice friendly advisors like Jonathan and Morven.
    I knew I had to start the ball rolling with getting our finances sorted but it was a hard thing for me to do as it cements the fact that our lives have changed forever. You made the whole process so much easier.
    You’ve solved that dilemma for me… Thank you for being so clear and honest as always.
    Just a big thank you for all you have done for our family. We do appreciate it.
    Thanks again for your advice, you have given me the kick I needed to take control and I’m very grateful for that.
    I just want to thank you and your team so very much for all you do for me throughout the year. It is a real comfort to know that my investments are in such capable hands. I literally couldn’t do it on my own.
    A very personalised service… All advice is tailored to my needs with great consideration to issues I may not have thought of myself. I feel confident about my future finances.
    We feel we can phone at any time during office hours if we need anything clarifying. Our financial adviser knows our personal circumstances and is in tune with our goals and lifestyle. His advice has been and continues to be excellent.
  • Twitter

  • Contact Details

    Telephone:
    0161 973 9150

    Fax:
    0161 941 6591

    Address:
    Cecil Court,
    28-36 Cecil Road,
    Hale,
    Altrincham,
    WA15 9PB

    Find Us

Main Menu