Losing a spouse is a particularly difficult time and there is often a lot to consider. What you may not have realised is that new rules came into effect this month (April 2015) which mean that spouses and civil partners can now inherit one another’s ISA allowances for any deaths occurring after 3rd December 2014.
If you have subscribed to ISAs over a number of years, it is possible that the majority of your savings will be held in ISA investments. For couples, it has never and is still not possible to hold a joint ISA. In some cases, one spouse might have held the majority or perhaps all of the savings in an ISA in their sole name and obtained significant tax relief in the process.
The old rules:
Under the old rules, when an individual died, their ISA savings lost their tax-free status and even if the surviving spouse inherited their estate, they would not be able to continue with those tax-free savings. All of a sudden, money that was previously earning interest and growing free from tax would be subject to tax.
The new rules:
The new rules mean that on the death of an ISA holder, the surviving spouse or civil partner can effectively inherit the ISA benefits that their deceased spouse had. The surviving spouse simply claims an additional allowance equivalent to the total value of the deceased spouse’s ISAs as at the date of their death.
For example, if your spouse had £100,000 in ISA savings, your ISA allowance for the year would be £115,240. That is the sum of your spouse’s ISA savings plus your ISA allowance (currently standing at £15,240).
Making the claim is time limited but in most cases you will have three years to do so. In order to claim the additional allowance the ISA provider will require you to complete an application form. It is important to note that the allowance can be used with any ISA provider who will accept the investment and does not have to be made with the existing provider. This should not detract from the fact that this will usually represent a good opportunity to obtain financial advice on the options available to you.
In addition to financial advice it is particularly important for executors to consider the legal aspects of these new rules carefully. There are pitfalls to look out for, particularly if the requirements for using the additional allowance are not understood. There is a particular risk that you could lose part of the additional allowance if you make a subscription of less than the full allowance to an ISA provider who does not accept subscriptions in instalments. It should also be noted that cashing in an ISA would prevent you from using the additional allowance to re-register in a new ISA any non-cash assets which were held in your spouse’s ISA (although not from using the allowance to subscribe to an equivalent amount of cash).
At GA Solicitors we are well placed to provide you with comprehensive advice on the administration of estates and in fulfilling your role as an executor. Our dedicated, qualified and understanding team will be pleased to meet with you and discuss this further.
Many members of our wills, trusts and probate team are also members of the Society of Trust and Estate Practitioners and Solicitors for the Elderly so you know you are in safe hands.