TRANSFERABLE ISA ALLOWANCE ON DEATH
We explain how married couples and civil partners can use the transferrable ISA allowance on death (known as the Additional Permitted Subscription, or APS). This permits the surviving spouse to keep the accumulated ISA allowance of their deceased partner. These rules have now been updated to improve, and simplify the process with the Continuing Account of a Deceased Investor (CADI). This allowance is not available for unmarried partners.
- How the transferrable ISA allowance works on death
- How the allowance works in practice
- The ISA allowance passes to the surviving spouse, not the ISA assets
- You have 3 years to use the transferrable ISA allowance
- You can use the allowance with cash or share ISAs
- Examples in practice
- Transferrable ISA allowance case study
- What to do if your spouse has died
The transferrable ISA allowance on death – the additional permitted subscription
The transferrable ISA allowance applies to all spouses and civil partners for deaths after 3rd of December 2014. It applies to all ISA assets of the deceased spouse built up before that date, and is in addition to the surviving spouse’s own ISA allowances. Therefore, it effectively means that after your spouse or civil partner dies you can rollover their ISA investments into your own name, and still retain their tax-free status. In practice the transferrable ISA allowance works slightly differently, as we will explain below.
How the transferrable ISA allowance works in practice
The deceased spouse’s ISA holdings will be valued at the date of their death. The surviving spouse will be granted an additional ISA allowance (over and above their own ISA allowances). They can then use this additional allowance to pay in the original ISA holdings, or new money from their own savings. The original ISA holdings do not automatically pass from one spouse to another on death. This is because the deceased spouse may have given the ISA investments to someone else in the will. Even if this happens, the surviving spouse still gets to keep their deceased partner’s ISA allowance.
The transferrable ISA allowance passes on death, not the ISA investments held by the deceased spouse.
A certificate will be sent to the Executors under the deceased’s will (or other personal representatives). The transferrable ISA allowance will be available for up to 3 years from the date of death, or 180 days from when probate is granted, whichever is later. Therefore, if probate is held up for a long time, the 3-year window may be extended.
You do not have to use the same ISA manager as your deceased spouse.
The spouses must have been living together at the date of death. The transferrable ISA allowance would not be available if the spouses were separated under a Court Order, a deed of separation, or it was likely to be a permanent separation.
As you can imagine, this allowance could prove to be a very valuable allowance, as your spouse may have built up significant ISA holdings during their lifetime.
Examples – 3 options for using the transferrable ISA allowance
- Invest your own money
This option is open to you from the date of death and you do not need to wait until probate is granted, provided you have available funds. Once you receive the transferrable ISA allowance certificate from the Executors you can use your own cash to fund a new ISA with any ISA provider you choose. This will be in addition to your own ISA allowance for that tax year.
- Convert existing investments
This option is open to you from the date of death and you do not need to wait until probate is granted, provided you have available funds. Once you receive the transferrable ISA allowance certificate from the Executors you can use existing taxable accounts to fund an existing or new ISA. This can mean that you could convert taxable investments to ISAs and save the tax being paid on them.
- Use the inherited money
This option is only available to you after probate is granted and the assets under the deceased’s estate are distributed. If this option is to be used the surviving spouse must have been a beneficiary under the will (otherwise, they would have to use their own assets). The inherited ISA assets may not be of the same value as their value at the date of death. If they are greater in value, then any excess would not be able to be used within the transferrable ISA allowance. If they are worth less then you can top up the difference if you have available funds. Effectively, the ISA holdings would have been sold after death and can then the cash can be reinvested in the same or different investments. Take care with this option as some investments may not be available since they may have closed to new business after the deceased spouse bought them.
Transferrable ISA allowance case study
Tom and Yvonne were married for 30 years before Tom died suddenly. At the date of his death Tom held investment ISAs worth £65,000, plus cash ISAs worth £15,000. Neither partner had used their ISA allowance for this tax year. Yvonne also held investment ISAs worth £40,000, and cash ISAs worth £25,000. She has £100,000 in her bank account following Tom’s death.
After Tom died, Yvonne received 2 certificates from Tom’s ISA providers – one for the cash ISA for £15,000 and another for the investment ISA for £65,000. Therefore, Yvonne now had 2 transferrable ISA allowance worth a total of £80,000. Had Tom died before 3rd December 2014, these ISA allowances would have been lost.
Yvonne chose to use her existing cash to invest a further £80,000 with her own investment ISA provider. This did not affect her own ISA allowance for the tax year. Therefore, Yvonne was also able to make additonal ISA contributions of £15,240 (the maximum available to her for the tax year). Tom’s unused ISA allowance for that tax year was lost on death.
When probate was granted, Yvonne later received the balance of Tom’s ISA holdings in cash – £65,000 plus £15,000.
What should you do if your spouse has died?
If you are in this position, then please contact us. We can help you to better understand your ISA position, and how to best use your assets to fund your future lifestyle. In particular, we understand how the death of a loved-one can be a difficult time for your finances. You should take expert advice to ensure that you secure your future and do not make mistakes with your inheritance.
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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.