The new tax year will bring changes to ISAs (individual savings accounts) for those dealing with ISAs held after the death of the account holder.
From April 6, 2018, there are to be extra benefits for those inheriting assets held in an ISA. The changes are designed to reduce the tax charge and simplify the transfer of funds for those administering the person’s estate.
Firstly, subject to certain stipulations, beneficiaries or legatees will not be hit with an income or capital gains tax bill on investments retained in an ISA while the estate is being dealt with.
From April, investments held in an ISA after the death of the account holder are deemed as ‘administration-period investments’ and will be held in a ‘continuing deceased’s account’ until the earlier of the administration of the estate being finalised, closure of the account on the withdrawal of all assets out of the ISA or three years after the account holder’s death.
This means that no income tax will be payable during this period on any returns accrued. Plus, all capital gains accrued to the date that the investments cease to be in an ISA are extinguished.
The incoming legislation also adjusts the additional ISA allowance available to surviving spouses or civil partners of deceased ISA savers (known as the Additional Permitted Subscription, or APS) to take account of this change.
The surviving spouse or civil partner can use their ISA allowance in the normal way, separately from any APS.
Further, the new rules confirm that no new subscriptions can be made to a continuing deceased’s account after the death of the account holder, and the account cannot be transferred between ISA providers, other than in specified circumstances.
These changes to regulations only apply to ISAs held by an individual who dies on or after 6 April 2018.
Paula Steele, managing partner at John Lamb Financial Planning, says: “Savers may have been disappointed that ISA limits were left untouched by the Government this year, remaining at £20,000 per individual. However, these changes to ISAs are long overdue and will be welcomed by anyone having to manage ISA investments as part of an estate.