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Inheriting ISAs on death – minor rule change

Whilst new rules that allow the value of ISAs (Individual Savings Accounts) to be passed to a surviving spouse on death have been operational for a couple of years now, there remained a minor issue in the payment of tax under the regulations which affected a small number of savers.

The rules stated that any income or gains arising within the ISA after the death of the account older were not exempt from tax and with a rising market and substantial funds held in an ISA account, this meant that because the account holder had died, the growth must be assessed against the deceased’s personal representatives or beneficiaries until the administration of the estate had been completed.

To deal with this situation and with effect from 6 April 2018, the ISA regulations have now been amended so that the investment held in an ISA following the death of the account holder will be classed as ‘administration-period investments’ and held in a ‘continuing account of a deceased investor’ until the earlier of the following:

  • the completion of the administration of the deceased’s estate
  • the third anniversary of the account holder’s death
  • closure of the account on the withdrawal of all assets out of the ISA 

In simple terms, this means that during the 'administration period', the personal representatives or beneficiaries will not be liable to any income tax or capital gains tax charges on the ISA investments being transferred.

The funds must have remained in the ISA following the investor’s death (rather than being sold or transferred) in order to qualify and the beneficiary will be treated as simply acquiring the investments at the market value at the date of transfer. This method ensures that any capital gains accrued up to the date that the investments cease to be held in an ISA are extinguished and set the base value for a future disposal of that investment by the beneficiary. 

Additional permitted subscription.

This is the formal title of inheriting an ISA as we covered in a previous article which you can read here: http://www.armstrongwatsonfp.co.uk/blog/2017/08/right-inherit-isa

The new regulations therefore allow for the maximum additional permitted subscription available to the surviving spouse or civil partner to be the higher of the value of investments held in a deceased’s ISA account at the date of death (on or after 6 April 2018) and the value of the 'continuing account of a deceased investor', immediately before it ceases to be the 'continuing account of a deceased investor'.

Whilst this affected very few investors, it was a situation which, when it did occur, was somewhat of an issue over who was, or should be liable for tax on the gains, but now the regulations have been updated this will no longer be an issue.

Our independent financial advisers can support and advise you on financial matters such as these. Contact our Financial Planning Consultants at any of our office locations across Cumbria, Northumberland, Yorkshire and Scotland or call 0808 144 5575.

 

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