HMRC has drafted regulations that will allow Individual Savings Accounts (ISAs) to keep their tax advantages after the account holder’s death. The proposed legislation states that investments kept in an ISA after death will become ‘administration-period investments’ until either administration of their estate is finalised or three years have passed since their death.
Under the regulations, personal representatives and beneficiaries or legatees will not have to pay income tax or capital gains tax within the specified period. The legislation also states that no new contributions can be made to the account and the account may only be transferred between ISA providers in certain circumstances. In line with these changes, the additional ISA allowance available to surviving spouses or civil partners will be modified according to the value of the investments held in the deceased’s account.
The new legislation will change the rules for capital gains tax in relation to administration-period investments. When a personal representative receives the deceased’s assets, the acquisition will now be treated as if it was made by a legatee.
Paula Steele, managing partner at John Lamb Financial Planning, says: “The proposed legislation from HMRC is a positive development as it reduces liability to tax and will simplify the process of transferring funds held in the deceased’s estate.”
The draft regulations are now under consultation until 7 April 2017, but it is not yet known when they will be introduced.