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.
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