Cash and Stocks & Shares ISAs are a valuable asset due to their tax status; interest is paid tax free, growth is tax free without being subject to Capital Gains Tax (CGT) and income taken is also tax free.
The maximum ISA contribution from 2017/18 tax year is £20,000. You cannot hold an ISA with or on behalf of someone else. If you have a flexible ISA, you may take money out of it and then replace it within the same tax year.
Old cash or stocks & shares ISAs can be transferred to a new provider without losing their tax efficient status. It is possible to transfer a Cash ISA to a Stocks & Shares ISA or vice versa.
Cash ISAs may be taken out by anyone who is aged 16+
Stocks & Shares ISAs may be taken out by anyone who is aged 18+
On the death of an ISA account holder, the surviving spouse or civil partner is allowed to inherit the full value of the deceased persons ISA and takeover the tax efficient status.
The IFISA is for those aged 18+ who want to invest in 'peer to peer' lending to achieve tax free interest and capital gains and are comfortable in taking higher risk with their money.
Crowdfunding equity investing is not allowed.
The investments for this ISA are in the Alternative Investment market (AIM) and are therefore higher risk than those in a standard ISA. The good thing, is that unlike a standard ISA, the AIM ISA if held for two years and at death, is not in the calculation for Inheritance Tax (IHT).
Junior ISAs (JISAs) may be taken out by parents or guardians (the registered contact) on behalf of children under the age of 18 and that live in the UK. The JISA money belongs to the child and the maximum annual contribution is £4,080. The money can be invested in a Cash or in a Stocks & Shares JISA, or partly into both. The child can take control of the ISA at age 16 but cannot withdraw the money until age 18. JISAs automatically become Adult ISAs at age 18. Only the registered contact may make changes to the JISA.
This ISA is for people aged under 40 who are allowed to put in up to £4,000 per year and then this is topped up by an extra 25% from Govt. This is mainly to save for a First Time House Purchase and there are other rules and penalties associated with this type of ISA.
The Help to Buy ISA is a savings account that helps first-time buyers get onto the property ladder. It is different from other ISAs because Government will add a 25% cash bonus on savings between £1,600 and £12,000, to help you to buy your first home.
To be eligible, you must be a UK resident aged 16+ to take out this ISA. You must also have not used up your full ISA allowance for the tax year in question. You can use the money for another purpose but you will not then receive the 25% Government bonus.
In order to take advantage of this benefit, you must never have owned or been bequeathed even part of a property, else you will not be classified as a ‘1st Time Buyer’.
Since 3 December 2014, where a person holding an ISA dies and that person was married or in a civil partnership, the surviving spouse/civil partner is entitled to an extra ISA allowance equal to the value of the ISA(s) held by their spouse/civil partner (even where the spouse/civil partner does not actually inherit the ISA). This is referred to as the Additional Permitted Subscription (APS) allowance.
This allowance can be used with the ISA provider of the deceased or an ISA provider chosen by the surviving spouse/civil partner. If the spouse/civil partner selects a different ISA provider, the allowance is passed to that ISA provider. This can happen only once.
Some ISA providers will allow the spouse/civil partner to make regular payments to use the allowance and some may only allow a one-off payment.
Broadly, the time limit for using the allowance is three years from date of death.
In some circumstances, the allowance can be used with stocks and shares held in an ISA of the deceased which can be passed to an ISA held by the spouse/civil partner without needing to be sold. (In-specie transfer)
This is an additional allowance independent of the normal annual ISA allowance.
This is not dependent on inheriting the actual money or investment in the ISA; that follows the normal estate process.
It is inheriting an allowance that equals the balance of the deceased’s ISA at the date of death.
The APS allowance is in no way affects the administration of the deceased’s estate after death.
The value is calculated as the sum of the ISA held with the ISA provider at the date of death.
Where the deceased held multiple ISAs with different ISA providers there will be a separate APS allowance with each of the ISA providers.
The APS allowance is not something which can be transferred to another person; it is solely to be used by the spouse/civil partner of the deceased.
The APS allowance does not apply to Junior ISAs or Child Trust Funds.
Anyone whose spouse/civil partner has died on or after 3 December 2014 and at the date of death were: married or in a civil partnership; not legally separated or likely to become legally separated (if either spouse was in a care home this would not generally be considered as legally separated); and 16 years of age or over.
The availability of the APS allowance is not limited to UK residents. So customers who have moved abroad but whose spouse/civil partner still held an ISA(s) in the UK at the date of their death will be entitled to claim the APS allowance. How they use the allowance, will be limited by the fact they live abroad, however.
Contact the deceased’s ISA provider for information about what is needed as evidence of eligibility in order to provide information about the APS allowance. In all instances the death must have been registered with the ISA provider before they can supply information about the APS allowance.
APS allowance subscriptions, referred to as payments, can be made to a Cash ISA and/or a Stocks and Shares ISA with the same ISA provider. Payments can be made in cash or, in some cases, can also be made “in-specie”. Cash payments do not have to be made using the inherited assets. In-specie means transferring inherited investments, which were held in the deceased spouse/civil partner’s ISA, to an ISA of the same type (a Cash ISA or a Stocks and Shares ISA) with the same ISA provider without selling the investments. The value of assets at the time the transfer is made counts towards the APS allowance limit.
The APS allowance can be used from 6 April 2015 for subscriptions made in cash, the APS allowance is available for three years after the date of death, or for up to 180 days after administration of the estate is complete (i.e. when the personal representatives have distributed the assets of the estate), whichever is the later. This is known as the ‘permitted period’.
For deaths between 3 December 2014 and 5 April 2015, the permitted period begins on 6 April 2015. However, the permitted period for subscriptions made in specie is within 180 days of beneficial ownership passing to the surviving spouse/civil partner. For distributions between 3 December 2014 and 5 April 2015, the permitted period begins on 6 April 2015.
The APS allowance can be used with the deceased’s ISA provider or another ISA provider.
Not all ISA providers will accept APS allowance subscriptions, but they are obliged to pass relevant APS allowance information on to another ISA provider.
Some ISA providers will allow payments to be made in instalments, whereas other ISA providers may only accept a lump sum payment.
If the lump sum payment is less than the total amount of the APS allowance, then any remaining allowance will be lost.
The ISA provider can require that the APS allowance is used via a separate ISA or by topping up an existing ISA.
ISA providers will require certain information from the spouse/civil partner to open an ISA. They will also require an application form to use the APS allowance; which will typically include information such as: the deceased’s date of birth; National Insurance Number of the spouse/civil partner (required) and the deceased (if known); the date of death; the date of marriage or civil partnership; and the deceased’s address.
A customer new to the ISA provider will also need to produce identification and verification documents (such as a valid passport and utility bill). A declaration of eligibility for the APS allowance will be required and further declarations will be required every time an additional APS allowance payment is made.
Yes, subject to the other ISA provider agreeing to accept the transfer.
The new ISA provider should be approached to initiate the transfer and once initiated, ISA regulations require that this takes place within 60 days.
The APS allowance can only be transferred once and only where no subscriptions have been made under the APS allowance.
APS allowances can be held with more than one ISA provider if the deceased held ISAs with more than one ISA provider.
After an APS allowance payment has been made, the cash and/or investments relating to that subscription can be transferred to another ISA. If the APS allowance has not been fully used, and the original ISA provider allows payments in instalments, any further APS allowance payments must be made to the original ISA provider.
Source: BBA Enterprises, April 2015 AE263
A pension lump sum bequeathed to spouse or civil partner, for example, may be placed directly into the APS.
EJ FINANCIAL LTD
EJ Financial Limited • 26 Inglewood House • Templeton Road • Kintbury • Berkshire • RG17 9AA
EJ Financial Limited • 2nd Floor • Johnsons Building • The Broadway • Crowborough • East Sussex • TN6 1DE
EJ Financial Ltd. Registered in England and Wales No 9370740
EJ Financial Ltd is authorised and regulated by the Financial Conduct Authority No 670594
01892 234884 • 020 3657 9079 • 01635 777795
The Financial Conduct Authority does not regulate taxation and trust advice.
The value of your investment can go down as well as up and you may get back less than you have invested.
The information contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.
NOTE: None of the above constitutes advice, always consult a professional adviser before making any investment decisions.
Please talk to Ted on 01892 234884 or 01635 777795 for further information.
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