Can I inherit an Isa?
If you save into an Isa, it means you can grow your money in a tax-efficient way. Unfortunately, when you die, this tax-free benefit dies with you – unless you're married or in a civil partnership.
Your surviving spouse or civil partner is now able to inherit your Isa savings when you die without losing the tax shelter, under rules introduced in April 2015.
Previously, Isa savings could be passed on to beneficiaries named in your will or through the laws of intestacy if you die without a will, 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.
The rules represent a boon for couples who have jointly saved into an Isa held in only one name.
How are Isa allowances inherited?
Anyone whose spouse or civil partner died on or after 3 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 annual Isa allowance - which is £20,000 in the 2018-19 tax year. This allowance will remain at £20,000 in the 2019-20 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.
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.
What if the Isa grows in value after death?
From 6 April 2018, new legislation means that all types of Isa (except the Junior Isa) will turn into a ‘continuing account of a deceased investor’ or a ‘continuing Isa’, so that any growth remains tax-free.
Before this tweak to the rules, the APS allowance was frozen at the value of the deceased's Isa at the time of death. This meant that any growth became taxable during the probate process, which can take months or even years depending on the complexity of the estate.
From the 2018-19 tax year onwards, this rule change means that the APS allowance is equal to the value of the money passed on, or the value at death, whichever is higher.
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 Isas 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 APS payments?
In short, no. Isa providers aren't obliged to accept APS allowances, so you may not be able to deposit inherited savings with the provider of your choosing.
Which? analysed Moneyfacts data and found that only 21% or 64 of the 308 fixed and variable rate cash Isas on the market will accept APS cash Isa transfers.
A few providers have launched products specially designed to take advantage of the new rules, shown in the table below.
However, some of these accounts will only accept APS payments if the deceased Isa holder was a customer. Others ask beneficiaries to open an inheritance Isa solely for this purpose.
|Provider||AER (£10,000 balance)a||Managing the account||Opening restrictions|
|Coventry BS |
Additional Allowance Isa
|1.4%|| || |
Deceased Isa holder must have been a Coventry BS Isa customer.
|Penrith BS APS Cash Isa||1.25%|| ||Deceased Isa holder must have been a Penrith BS Isa customer.|
|Kent Reliance |
APS Cash Isa Issue 3
|1.24% (fixed for 1 year)|| ||No|
Direct Isa - Inherited Allowance Account
|Dudley BS |
Additional Permitted Subscriptions Isa
|West Brom BS |
Additional Permitted Subscriptions Isa
|Nationwide BS |
Inheritance Isa Issue 10
|0.5%|| ||Deceased Isa holder must have been a Nationwide Isa customer.|
|Skipton BS |
|Furness BS |
APS Cash Isa
Additional Allowance Isa
|0.56%|| ||Deceased Isa holder must have been a Britannia, Smile or Co-op Bank Isa customer.|
Rates and product features accurate to October 2018.
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.
Under new rules that came into force on 6 April 2018, no money can be paid into the deceased's Isa during administration, but it will continue to benefit from its tax-free status, and any growth will remain tax-free, too.
This status - known as a 'continuing Isa' - lasts until either the administration of the estate is complete, the Isa is closed, or three years pass since the person's death (whichever is soonest).
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.
The allowance can cover the value of cash or investments being passes on, or the value of the Isa on the date of death - whichever value is higher.
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.