An Individual Savings Account (ISA) will become a ‘continuing ISA’ upon the death of an investor. This means that despite not being able to make further contributions, the tax advantages of an ISA will remain in place until:
- The administration of the estate is completed,
- The ISA is closed by the executor(s) of the estate, or
- Three years and one day has passed since the date of death
Inheriting an ISA – Additional Permitted Subscription (APS)
A surviving spouse or civil partner can apply for an additional ISA allowance, known as an Additional Permitted Subscription (APS), which is equivalent to either the value of the ISA as at the date of death, or the value of the ISA upon closure.
For example, should an investor pass away leaving an ISA worth £40,000, the surviving spouse would have an APS of £40,000 plus their own annual ISA allowance of £20,000 for the current tax year.
During the administration of the estate, if the value of the ISA increased by £500, the surviving spouse could apply for an APS of up to £60,500 (considering the value of the ISA upon closure). Alternatively, if the value of the ISA were to decrease by £500, the surviving spouse would still be entitled to apply for an APS of up to £60,000 (considering the value of the ISA as at the date of death).
An APS can be used in the following ways:
- Cash transfer whereby all investments (i.e. funds and shares) would be sold and subsequent sale proceeds transferred over in cash.
- In specie transfer whereby investments would be transferred over without being sold.
Inheriting an ISA – Friend/Family
If a will has been written, an ISA can be left to a friend or family member (other than a spouse or civil partner). However, the tax advantages of an ISA will not remain in place and normal tax rules will apply. As such, sales of assets will be subject to capital gains tax from the valuation at the date of death.
Should you wish to seek financial advice on inheriting an ISA or using ISAs for inheritance tax planning purposes, please do not hesitate to get in touch.
Cave & Sons Ltd is authorised and regulated by the Financial Conduct Authority (FCA), Financial Services Register number 143715.
This communication is for general information only and is not intended to be individual investment advice or tax advice. The views expressed in this article are those of Cave & Sons and should not be considered as advice or a recommendation to buy, sell or hold a particular investment or product. You are recommended to seek professional regulated advice before taking any action.
Key Risks: Past performance is not a guide to future performance. The value of an investment and the income generated from it can go down as well as up, and is not guaranteed, therefore you may not get back the amount originally invested. Investment markets and conditions can change rapidly.