In his annual Autumn Statement, the Chancellor announced that ISAs can now be passed on death to a surviving spouse or civil partner in a tax efficient way.
Before 4 December 2014, the ‘tax free wrapper’ that makes ISAs attractive to savers was lost after death and the surviving spouse had to pay Income Tax on any income or returns from the money.
The survivor will now be given an additional one-off allowance equaling the deceased’s ISA holding.
H holds £30,000.00 ISA savings in his sole name and dies on 05/12/14.
From his date of death to the distribution of the funds to his surviving spouse the ISA tax wrapper is lost and the £30,000 investment becomes subject to Income Tax which is paid by the estate.
On or after 06/04/15 the surviving spouse has a one off opportunity to put the £30,000.00 into an ISA in their name in addition to their own ISA allowance which will increase in April 2015 to £15,240, thereby giving them a total ISA allowance of £45,240. The funds can then be added to the surviving spouse’s existing ISA or they can start a new one.
This change does not save Inheritance Tax as all assets transferred between spouses are at present free of tax.
In order to take advantage of this new tax benefit, it is advisable for couples to make sure ISAs are left to each other in their Wills.
If you would like to review or update your existing Will or make your first Will please contact us to speak to one of the friendly members of Large and Gibson's Wills, Trusts and Private Client team and see how one of our experienced solicitors can help.