CONTINUING ACCOUNT OF A DECEASED INVESTOR
Since April 2018 the rules have changed on how ISAs can be passed on to spouses and civil partners on death. The rules allow for a continuing account of a deceased investor (CADI). These changes improve the rules on Additional Permitted Subscriptions (APS).
- Rules on additional permitted subscriptions improved
- Continuing account of a deceased investor rules mean the surviving spouse can effectively inherit the deceased spouse’s ISA
Additional Permitted Subscription – previous rules
Previously, ISAs could be passed to a spouse on death, using the slightly complex rules of Additional Permitted Subscriptions. These rules meant that the value of the deceased’s ISA at the date of death passed to the surviving spouse, not the ISA itself. This led to various complications:
The deceased’s ISA had to be converted to a tax-paying account from death
This action created an ‘ex-ISA’. This meant that the surviving spouse would pay tax from the date of death on their deceased partner’s previously tax-free asset. This could be significant, especially if the estate was not dealt with swiftly.
The process was complex
Since the deceased spouse’s ISA allowance passed to the surviving spouse, and not the underlying assets, this meant that a complex administration process needed to take place. First, the Additional Permitted Subscription had to be passed from one ISA manager to another, from the deceased spouse to the surviving spouse. Second, the ex-ISA of the deceased spouse had to be liquidated, and paid to the survivor (assuming they inherited the asset). Third, the surviving spouse had to pay a new contribution to the Additional Permitted Subscription ISA. There were good reasons for these rules, but it made matters more complicated than was necessary, especially where there were multiple ISAs, or if the ex-ISA assets increased in value after death.
Continuing account of a deceased investor – what is changing?
Thankfully, the rules have been simplified. When an ISA investor dies on or after 6th April 2018, if they have a surviving spouse their account becomes a Continuing Account of a Deceased Investor (CADI), or a Continuing ISA for short. The previous APS rules will apply for deaths before the 6th April 2018.
Now, the deceased’s ISA can continue for a period of 3 years after their death, or until the estate is wound up, or the ISA is closed (whichever is the soonest). No further contributions can be made to the continuing ISA.
The surviving spouse can take on the ISA of their deceased partner whatever the value at that point, without any further tax to pay. Practically, it is as if the ISA was always in the surviving spouse’s name, and no transfer took place. Therefore, if the ISA increases in value after death, the continuing ISA would not be affected. This is a major improvement on the previous APS rules, and could benefit surviving spouses if their deceased partner’s ISA grows in value after their death.
The continuing ISA cannot be transferred to a new ISA provider until after the estate is wound up.
We are used to dealing with the issues explained in this article, and our Prosper Service is designed to help those who are receiving an inheritance. Contact us if you would like to discuss how to manage an ISA portfolio.
Secure your future and live your dreams with Prosper.
An introduction to Financial Planning and Wealth Management
See how we help people in your situation Prosper...
The Personal Finance Portal
Get your free mini guide on
How to Prosper when
Receiving an Inheritance
This FREE Mini Guide is perfect for you if you are receiving an inheritance, and want to know whether your finances have a secure future.
RECEIVING AN INHERITANCE?
Find out how we help you Prosper with an inheritance.
MANAGING ANOTHER PERSON'S ASSETS?
Find out how we help you manage another person's assets using our Prosper service.
Do you require a simple system to achieve clarity in your finances?
Focus on the 7 most important figures necessary to create your own basic financial plan.
Discover a straightforward way to eliminate the clutter in your financial life to gain clarity on what is actually important with your money.
About Dan Woodruff
Certified Financial Planner & Chartered Wealth Manager at Woodruff Financial Planning
Financial Planning helps you to navigate and anticipate significant life changes. I want to help you to ensure your money is managed wisely to give you the financial security that will fund the future and lifestyle that is important to you.