Golden nest egg Isas

What happens to my Isa savings when I die?

  • Find out about the new inheritance rules for Isas
  • Discover how you can pass on your Isa savings tax-free
  • Understand what happens to stocks and shares Isa savings when someone dies

If you save into an Isa, it means you can grow your money in a tax efficient way. Unfortunately, when you die, this benefit dies with you – unless you're married or in a civil partnership.

New rules introduced by the government enable your surviving spouse or civil partner to inherit your Isa savings when you die.

The rules are quite complicated, but Which? is here to help. This guide explains what happens to your Isa when you die, and how your family can benefit from the changes.

Inheriting Isas

Previously, your Isa savings were treated like any other aspect of your estate - they could be passed on to beneficiaries named in your will or through the laws of intestacy -but automatically lost the tax efficient 'wrapper' they enjoyed during your life. 

That meant that if your spouse wanted to reinvest the savings you built up, they could only do so up to their maximum Isa allowance for that year.

As of April 2015 that's no longer the case. 

Your spouse or civil partner is now entitled to keep your Isa savings without losing this tax shelter. This represents a boon for couples who have jointly saved into an Isa held in only one name.  

Which Money Compare table: Savings accounts and Isas - hundreds of accounts compared

How are Isa allowances inherited?

Anyone whose spouse or civil partner died on or after 3rd December 2014 is eligible for a one-off additional Isa allowance equivalent to the value of the deceased person's Isa at the time of death.

This is referred to as an 'additional permitted subscription,' or APS allowance. 

Say, for example, that you'd saved up £50,000 in your Isa when you die. Your spouse will be able to make an additional contribution to their Isa of up to £50,000, in addition to their own Isa allowance for the year (£15,240 in the 2015/16 tax year).

This allowance is regardless of what's in your will. Which means that even if the money is left for someone else to inherit, such as your son or daughter, your partner is still entitled to an increased allowance equivalent to the value of your Isa assets on the day of death.

So if you left £50,000 worth of Isa assets to your child, your partner would still be entitled to an increased Isa allowance of £50,000, although they would be using their own money to fund it.

Where can I invest the Isa savings I've inherited? 

The surviving partner can choose where to transfer the inherited savings. They can:

  • Keep the money with the original Isa provider
  • Put the money with their own Isa provider
  • Open up a new cash Isa or a new stocks and shares Isa and place the additional subscription there  

An APS allowance can only be transferred once but if there is more than one Isa to inherit, you'll have an allowance with each provider. 

Under the Isa rules, you can only have one cash Isa and one stocks and shares Isa per tax year.  However, you won't breach these rules if you open up an Isa for the sole purpose of transferring inherited savings. 

So, you could have some money in your own cash Isa with one bank, and place the Isa savings you've inherited in another bank.

Once the transfer has been made, the normal Isa rules apply and the money is treated as previous years' subscriptions.

Do Isa providers have to accept payments?

In short, no. Isa providers aren't obliged to accept APS allowances - so you may not been able to deposit inherited savings with your own Isa savings. 

Several building societies have already launched new ‘inheritance Isas’ specifically designed to take advantage of the new rules.

The table below compares the 10 cash Isa providers who've launched products specially designed to accept the additional permitted subscription from an inherited Isa. 

 Special 'Inheritance Isas' compared

 

Table notes

  • a) Rates and product features accurate to 04 February 2016. All accounts offer instant access to funds.
  • b) AER on balances below £5,000 is 0.5%. AER on balances between £5,000 and £15,000 is 1.1%.
  • c) AER on balances below £10,000 is 0.5%. Withdrawals can only be made in-branch.

Which Isa providers don't accept inherited Isa savings?

We analysed 55 Isa providers in August 2015 and found that 44 of them accept inherited Isa savings in some form or another.

The 11 providers who didn't accept the additional allowance are; 

  • Bath BS
  • Buckinghamshire BS
  • Harpenden BS
  • Leeds BS
  • Manchester BS
  • Mansfield BS
  • Melton BS
  • Mowbray BS
  • GE Capital Direct
  • Furness BS*
  • Al Rayan Bank*

*Furness BS and Al Rayan Bank told us they are planning to accept inherited Isa savings in the near future.

Is there a time limit for additional Isa subscriptions?

When someone dies, their estate has to be administered. This means that all of their assets have to be gathered and debts must be repaid, before it can be distributed to the people named in the deceased's will.

During this period, interest earned on savings in their Isa is taxable, and income tax may need to be paid. 

To help couples keep the tax benefits of their savings, the increased Isa allowance can be claimed by filling out an application form and is available for three years after the date of death, or if longer, 180 days after the estate has been administered.

Find out more: How to make a will - read our step-by-step guide

What happens when you inherit a stocks and shares Isa?

Stocks and shares Isas are treated in the same way as cash Isas under the reforms, with surviving spouses entitled to make additional subscriptions into either a stocks and shares Isa or a cash Isa.

There are two ways for a surviving partner to use their inherited stocks and shares allowance:

  • All of the investments – such as funds and shares – could be sold, and the resulting cash can be used to open a new Isa. This is known as a 'cash transfer.'
  • Alternatively, the investments can be transferred directly without being sold. This is known as an ‘in specie’ transfer. 
  • Additional subscriptions made via an ‘in specie’ transfer must be made within 180 days of the surviving partner inheriting the funds and can only be made to the deceased Isa provider.

Find out more: The ultimate guide to stocks and shares Isas - all you need to know about these accounts

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