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How to pass on ISAs after you are gone

4th October 2018

ISAs have long been regarded as a simple and effective way of protecting your savings from the taxman, with the increased limit now allowing you to shelter up to £20,000 of your savings a year from being taxed. Whilst this can be a great help in protecting your nest egg during your own life, you’ll also want to know that your hard-earned savings will be safe after the event of your death so that as much of the money you’ve accumulated as possible can go to those you leave behind.

Thankfully, in the case of a spouse, this need not be a worry. The government introduced legislation in 2015 which means that surviving husbands, wives or civil partners can effectively inherit an ISA from their other half with the tax-free wrapper remaining intact. This is achieved by giving the surviving spouse an Additional Permitted Subscription (APS) allowance that is equal to the total ISA value(s) held at the date of death. This is added to the surviving member’s annual limit. The ISA will also not be subject to inheritance tax (IHT) if it’s being passed on to your spouse.

However, if you’re leaving an ISA to another family member, such as a child, the amount held in the account is still considered to be part of your estate. It could therefore be a contributing factor in pushing your assets over the amount that can be left to someone else without incurring tax, known as the ‘nil rate band’. As IHT is payable at a rate of 40%, this could put a serious dent in the amount your loved ones will actually receive after you’re gone.

If your savings are likely to push your estate above the nil rate band, there are various options available to reduce your potential inheritance tax liability. It is now easier than ever to safeguard your pension from IHT for example, no matter who you’re planning to leave it to, so it’s normally a good idea to seek professional advice about the best way to protect your estate from being taxed before making any plans for your savings. To learn more about ISA rules and Inheritance Tax please read our factsheet.

Reference – BL019 – Aug – 18

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