Question
I'm hoping you can advise about inherited ISAs. I've read most of the HMRC documents on-line, if not all of them. The information seems confusing.
I am aware that the spouse inherits the total ISA value at the time of death as an Additional Permitted Subscription (APS). What is less clear is how it can be used when the spouse also inherits the assets.
I have read that the APS can only go to one manager. However, I have also read that the account can be left with the existing manager - so what if the APS is made up of several different ISAs from different managers? Can they all be left with the original managers? (Assuming they accept APS's) Or does the spouse have to pick one manager and transfer the rest?
Answer
You are not wrong that the information is confusing. This is one of the reasons that the Office of Tax Simplification is reviewing ISAs and all their rules – let’s just hope that something actually comes of this review.
In the meantime, let me see if I can clear up some of this confusion.
In the first instance, to understand the value of the Addition Permitted Subscription (APS), the APS and the inheritance should be viewed separately – the way I would probably look at it, is that you simply have the ability to deposit an amount in addition to your own annual ISA allowance, up to the total value of the ISAs on the date of death.
If the death occurred after 6th April 2018, the rules have changed recently as the ISA no longer loses its tax-free status on death, so the allowance would be either the value on the date of death, or the value on account closure/transfer.
Having said this, the deposit can be made with either cash (inherited or any other cash you have available) or inherited non-cash ISA assets. With regard to the latter, if you inherit non-cash ISA assets, these can be used to make an APS ‘in-specie’ transfer, provided these are the assets that were held on death. APS subscriptions made in specie with non-cash assets must be within 180 days of beneficial ownership passing to the surviving spouse.
If your spouse has several ISAs, each APS can be made to the same ISA manager as held the deceased's ISA (for that particular APS) or to a different ISA manager. But each separate APS has to be made to one ISA manager. So, if the deceased had the following:
- £10,000 with ISA manager A
- £20,000 with ISA manager B
- £50,000 with ISA manager C
The spouse of the deceased has three separate APS amounts and each can either remain with the current ISA manager or move to a new one of their choosing (and who is prepared to accept the APS).
If the spouse uses £25,000 of the APS relating to the ISA with ISA manager C to invest in an ISA with new ISA manager D, they must also invest the other £25,000 of that particular APS amount with ISA manager D (but the other two APS amounts with ISA managers A and B can still be invested in ISAs elsewhere).
Once the APS is invested, the facility to transfer to other ISAs is then available in the normal way.
I must agree that the guidance is not easy to understand and at times appears conflicting, but I hope that this clarification has helped.
*We are occasionally paid by some providers if you click through from our Best Buy Tables and open a savings or current account with them. We will never accept a payment that compromises in any way our independent, whole of market approach to providing information on savings products. For clarity we will indicate those companies who remunerate us with an asterisk (*).
You might also like...
The value of financial advice >>
Is cash the best investment for me, or should I be seeking financial advice?
ISA Transfers - what you need to know >>
What you need to be aware of if you are planning on moving your ISA savings.
Securing your wealth for future generations >>
A free guide to inheritance tax, wealth legacy & succession planning.
@savingschampion
Find us on Facebook