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What happens to ISAs after the final curtain?

Byline: Trevor Law

THERE is a much misunderstood perception that an ISA can be inherited, but it is not quite as simple as that.

In fact ISA status is lost on death and cannot be passed direct to the surviving spouse or civil partner.

Instead they are able to benefit from what is known as an additional permitted subscription (APS) equal to the value of the ISA savings held by their dear departed.

Isn't that splitting hairs, I hear you say? And I can understand your reasoning.

Yet there are significant differences which it is vital to understand if you are not to fall foul of the "small print".

And given that approximately 150,000 married ISA holders die each year these are important.

Via the deceased's will or through intestacy rules, there are two methods of achieving in effect the same ISA outcome. The assets can be moved across into the inheritor's ISA in what is known as an in-specie transaction. Alternatively, on inheritance, the individual makes a cash payment, the normal method for contributing into an ISA, in order to claim their additional entitlement.

However, the ISA benefits are only reinstated after the APS application has been made. In the meantime, any interest, dividends or gains which arise will be taxable.

What if the value of the assets has increased or decreased since the death? The value of the APS is the value of the ISA on the date of death. If this has subsequently risen the extra growth cannot form a part. If the value has fallen then cash can be used to bridge the shortfall.

Be aware too that there are deadlines to all this.

For an in-specie transfer the clock is ticking from the date that the assets are distributed to the individual from the estate of the deceased - the cut-off is 180 days. If this timescale is missed then the individual can use the cash subscription route instead. The time limits in these circumstances are no longer than three years after the date of death and no longer than 180 days after the administration of the estate has been completed.

The APS cannot be claimed where the surviving spouse or civil partner and the deceased were not living together at the time of death.

So, where the marriage or civil partnership had broken down or the couple had formally separated then the survivor will not benefit. Neither can cohabitees.

A few other significant details If there is more than one ISA then the total value would be combined. Subscriptions can be made to a cash ISA and/or a stocks and shares ISA but cannot be used to fund a Junior ISA.

For any AIM shares held within the ISA wrapper the two year period for business property relief (BPR), which started when these were first purchased, will continue to run during the administration of the estate.

The in-specie transfer will then allow the individual to fund the APS without interruption to this qualifying period.

There is no cap to the size of the deceased's ISA pot - no matter how much they'd saved in an ISA, you will have that amount as an APS.

For example, if your partner had PS50,000 in ISA savings, your ISA allowance for the year would be PS65,240 (the value of your partner's savings and your own ISA allowance for the 2016/17 tax year, which stands at PS15,240).

Providers will require key information and personal details from the spouse/civil partner to open a qualifying ISA, and they'll also require an application form to use the APS allowance.

If in doubt contact your adviser.

Trevor Law is managing director of Merito Financial Services, chartered financial planners, based in Solihull.
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Title Annotation:News; Teasers
Publication:The Birmingham Post (England)
Date:Jun 9, 2016
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