Inheriting Your Partner’s ISA : The new rules
This article is for information only and no recommendation is being made or should be construed from the contents of the article. Always seek independent financial advice prior to taking any action.
Up until last year, if you’re partner died, their ISA savings were treated like any other aspect of their estate – they could be passed on to beneficiaries named in the will or through the laws of intestacy but they would automatically lose their Tax Free status. This meant you would have to start paying tax on any returns or income earned from it, which could add up to a significant amount if the ISA had been held for many years.
This was considered unfair with many people caught out by these unexpected tax charges every year due to couples saving from joint incomes – this resulted in the surviving partner having to pay tax on money they thought was protected when one partner died.
From April last year, new rules around inheriting ISAs from a Spouse or Civil Partner were introduced to change this, but, as always, they are complicated. Within the new guidelines you do not technically inherit your partner’s ISA balance but you are entitled to an allowance to the value of their ISA account. This is called the Additional Permitted Subscription.
An APS is a one off additional Isa allowance equivalent to the value of your partner’s ISA at the time of death. This allowance is regardless of whether you inherited the ISA value, meaning that even if the money is left for someone else to inherit, such as your son or daughter, you are still entitled to an increased allowance equivalent to the value of your partner’s ISA assets on the day of their death.
To put these rules into an example, if your partner has an ISA valued at £20,000 (or across a few ISAs) when they die, you will be able to invest an extra £20,000 tax–free on top of your own £15,240 allowance. This additional allowance can only be used once you have registered your partner’s death with their providers.
It is important to know that not all provider’s accept APS – if they do not, the provider must pass the relevant information to another provider to allow you to transfer it. You could also transfer your allowance to your provider or an entirely new provider depending on if they accept APS.
Those who do accept APS will have their own rules. Some providers keep the allowance separate, others allow you to pay the APS into your own account. Some may also let customers drip feed funds into the APS while others may insist on a lump sum.
The rules around the process for inheriting ISAs can be complicated and it would probably be the last thing you need to consider with when losing a partner.
If you are unsure about your current situation or would like more information on this, talk to one of our experienced Financial Advisors at Prosperity IFA. Call us now on 01892 300 303.