Explained: The rules on inheriting ISAs | moneyfacts.co.uk

nigel woollsey

Nigel Woollsey

Online Writer
Published: 06/12/2018

At a glance

  • You can now inherit your spouse or civil partner's ISA savings and maintain their tax-efficient status.
  • To use the Additional Permitted Subscriptions (APS) you must have been living with deceased – not separated.
  • This includes Lifetime ISAs, but you can only use APS up to the current tax-year limit of £4,000 – any excess can go into other ISAs and will not be included in your annual £20,000 ISA subscription

What are the rules on inheriting ISAs?

Since April 6 2015 it has been possible to inherit the ISA savings of a spouse or civil partner on their death. The term for transferring a deceased person’s ISA is called an Additional Permitted Subscription Allowance (APS). Any ISA funds transferred as an ASP retain their tax-free status and are a one-off ISA allowance that is granted to the spouse or civil partner. This means the funds transferred under APS are not counted against the normal ISA subscription limit and are added to the surviving partner’s limit for that tax-year only. All ISAs transferred under APS are included in this new limit.

In other words, you'll be entitled to an additional allowance that would cover the value of your partner's ISA savings as well as your own.
For example, if your partner had £50,000 in ISA savings, your ISA allowance for the year would be £70,000 (the value of your partner's savings and your own ISA allowance for the 2020/21 tax year, which currently stands at £20,000).

Essentially, the rules mean that the tax-efficiency of the deceased's ISA won't be lost when the surviving partner makes use of their APS allowance, and that they will be able to benefit from the money that could well have been saved together.

The changes have been specifically designed to ensure that bereaved individuals will be able to enjoy the tax advantages they had previously shared with their partner, offering more flexibility and a much fairer outcome.

Additional rules on inheriting ISAs

It is important to note that in order to make use of the APS for ISAs then the deceased’s spouse or civil partner must have been living with them. If the couple are separated, whether by court order, deed of separation or where the marriage or partnership has completely broken down then the APS does not apply.

If the spouse or civil partner of the deceased is 16 or 17 years of age, then the additional permitted subscriptions must be made into an ‘adult’ ISA product. They cannot be made into a Junior ISA.

Until 5th April 2018 the subscriptions were limited to the value of the deceased’s ISA at their date of death. However, if the death occurred after this date, they can either be the value of the deceased’s ISA at their date of death or the point the ISA ceased to be a continuing account of a deceased investor.

 

Lifetime ISAs have a different rule

If you inherit a Lifetime ISA and want to transfer this to another Lifetime ISA, you can only transfer up to the maximum limit of £4,000 in a single tax-year under APS rules. Any excess can be transferred to other types of ISAs and retain its tax-free status.

 

The types of ISA you can use

APS can be made into a cash ISA, stocks and shares ISA or an innovative finance ISA (IFISA) – this form of ISA allows the holder to make investments via peer-to-peer lending in a tax-free wrapper.

How do I claim an inherited ISA?

An inherited ISA covers both when your spouse or civil partner have specifically left you an ISA in their will or whether you have just inherited it by being their next of kin.

You will need to contact the ISA provider and inform them (if they are not aware already) that:

a) The account holder is deceased
b) That you want to claim this ISA

Before you can claim an APS you will need to provide the ISA provider with:

  • The deceased’s full name
  • Their permanent residential address at the date of death
  • The deceased’s date of birth and date of death
  • Their National Insurance number (if known)
  • The date that your marriage or civil partnership took place
  • The identity of the account provider who managed the deceased’s ISA
  • There are also certain things that you’ll be required to declare:

1. That you are the surviving spouse or civil partner of the deceased.
2. That you were living with the deceased at the date of your spouse or civil partner’s death

You must apply for an APS within certain time limits. These are:

  • within 180 days of beneficial ownership passing to the surviving spouse or civil partner for ‘in specie’ transfers,
  • within 3 years of the date of death for cash subscriptions
  • if later than 3 years, within 180 days of the completion of the administration of the estate

Additional Permitted Subscriptions when inheriting an ISA can be complex and technical operation. Therefore, you may want to engage the services of a qualified financial advisor with a proven track record in dealing with this kind of product to help you make the right decisions.

Previous rules on inheriting iSAs and why it changed

Prior to 6 April 2015 when someone died, any savings held in an ISA automatically lost their tax-free status with this tax benefit lost forever. This meant that the surviving partner would have to start paying tax on any returns or income earned from it, which could add up to a significant sum if the ISA holder had been saving for many years.

The system was widely thought to be unfair, particularly given the fact that couples tend to save from joint incomes – they'd have to pay tax on money they thought was protected, and thousands of people were caught by these unexpected tax charges every year.

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Providers which offer APS specific ISA products

The following are providers which offer APS ISA’s for those who have inherited these accounts from a former customer of that bank or building society. Some of them will also allow transfers in from cash APS ISAs and/or stocks and shares APS ISAs.

Most of these products restrict opening and transfer to the spouse or civil partner of the deceased. (Note: These were correct as of 04.06.20.)

Provider

Rate Type

 

Opening Restrictions

 

Additional Permitted Subscription ISA Transfers In Allowed Cash APS ISA

 Transfers In Allowed Stocks and Shares APS ISA

Britannia

Variable

Must be the spouse or civil partner of the deceased

Yes

No

No

Coventry BS

Variable

Must be the spouse or civil partner of the deceased

Yes

No

No

Dudley BS

Variable

Must be the spouse or civil partner of the deceased

Yes

No

No

Furness BS

Variable

N/A

Yes

No

No

Kent Reliance

Variable

Must be the spouse or civil partner of the deceased

Yes

No

No

Loughborough BS

Variable

Must be the spouse or civil partner of the deceased

Yes

No

No

National Savings & Investments

Variable

Must be the spouse or civil partner of the deceased

Yes

No

No

Penrith BS

Variable

Must be the spouse or civil partner of the deceased

Yes

No

No

Santander

Variable

Must be the spouse or civil partner of the deceased

Yes

No

No

Skipton BS

Variable

Must be the spouse or civil partner of the deceased

Yes

No

No

Virgin Money

Variable

Existing Customers (Must be a savings customer of Virgin Money.) and/or Must be the spouse or civil partner of the deceased

Yes

Yes

No

West Brom BS

Variable

Must be the spouse or civil partner of the deceased

Yes

No

No

Providers which accept APS transfers into fixed and variable ISAS

The providers listed below allow the opening of new APS ISAs even if the deceased was not previously a customer. Where indicated the bank or building society can offer fixed, variable or both types of ISA.

(Note: This list is correct as of 04.06.20)

Provider

Transfers In Allowed Cash APS ISA

Transfers In Allowed Stocks and Shares APS ISA

Rate type or both

AIB

Yes

Yes

Variable

Barclays Bank

Yes

No

Both

Bath BS

Yes

No

Variable

Chelsea Building Society

Yes

Yes

Variable

Clydesdale Bank

Yes

Yes

Variable

Cumberland BS

Yes

Yes

Both

Danske Bank

Yes

Yes

Variable

first direct

Yes

Yes

Variable

Hampshire Trust Bank

Yes

Yes

Fixed

HSBC

Yes

Yes

Variable

Kent Reliance

Yes

Yes

Both

Leeds BS

Yes

Yes

Both

Leek United BS

Yes

No

Fixed

Metro Bank

Yes

Yes

Both

NatWest

Yes

Yes

Both

Newcastle BS

Yes

Yes

Variable

Principality BS

Yes

Yes

Both

Reliance Bank

Yes

Yes

Variable

Royal Bank of Scotland

Yes

Yes

Both

Sainsbury's Bank

Yes

Yes

Variable

Santander

Yes

Yes

Both

Scottish Widows Bank

Yes

Yes

Variable

Tesco Bank

Yes

No

Both

TSB

Yes

Yes

Variable

Ulster Bank

Yes

Yes

Variable

Virgin Money

Yes

No

Variable

West Brom BS

Yes

Yes

Both

Yorkshire Bank

Yes

Yes

Variable

Yorkshire Building Society

Yes

Yes

Variable

Inheriting ISAs FAQs

I live with my partner but we aren’t married or in a civil partnership. Do I still qualify for APS if they die?

No, only the ISAs of spouses/civil partners are eligible for APS ISA. Cohabiting couples are unfortunately unable to benefit under the current rules.

Does it matter how much I have saved in an ISA? Is there a limit to the allowed ISA ‘pot’ size?

No, the rules apply irrespective of the size of the deceased's ISA pots – no matter how much they'd saved in an ISA, you'll have that amount as an additional allowance. If more than one ISA was held by your partner, the pots will be combined to give an overall additional subscription amount that you can claim.

Can I use an APS for any type of ISA?

APS allowance subscriptions (referred to as APS payments) can be made to any ISA offered by the ISA manager (cash ISA, stocks & shares ISA or innovative finance ISA). An APS payment can be made to either the deceased's ISA provider or with an alternative ISA provider that will accept APS subscriptions (not all will). Some ISA providers will allow payments to be made in instalments whereas others only allow a lump sum, so make sure to check.

As we mentioned above, each ISA held by the deceased creates its own APS allowance for the survivor. The survivor then has two options – they can keep each APS allowance with the existing ISA provider, or they can transfer the whole of that APS to a different one. Each individual APS amount cannot be split between different ISA providers; it must remain whole. This means that where the deceased had multiple ISAs, the survivor can choose to combine all their APS payments into one, but they are not required to do so.

Is there a time limit to applying for an APS?

Chances are, arranging your new allowance won't be at the forefront of your mind on the death of your partner. In most cases, at least for subscriptions made in cash, the allowance is available for three years after the date of death.

What is the process of applying for an APS?

ISA 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.

Do I have to stay with the current ISA provider of the deceased or can I choose to take out an APS iSA elsewhere?

The APS allowance can be transferred to another ISA provider, subject to the new provider's acceptance. It can only be transferred once and only where no APS payments have been made under the allowance. But, after an APS payment has been made, the cash and/or investments related to that subscription can be transferred to another ISA.

Moneyfacts tip

Moneyfacts tip nigel woollsey

With savers who are married or in a civil partnership no longer having to worry about what happens to their ISA after death, they can feel free to put the money in any type of ISA they desire, including a stocks & shares ISA for long-term investment. Just remember that there will be other risks involved with investing on the stock market, so if you want to make sure you’re leaving your partner some tax-free savings should the worst happen, consider keeping some of your money in a cash ISA.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

retired couple looking at finances

At a glance

  • You can now inherit your spouse or civil partner's ISA savings and maintain their tax-efficient status.
  • To use the Additional Permitted Subscriptions (APS) you must have been living with deceased – not separated.
  • This includes Lifetime ISAs, but you can only use APS up to the current tax-year limit of £4,000 – any excess can go into other ISAs and will not be included in your annual £20,000 ISA subscription

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