An ISA is a tax efficient way to save or invest.  An ISA is a savings account or investment within a tax free wrapper which means that there is no income tax payable on any income generated by the savings or investments and no capital gains tax is payable on any growth of your investments. For higher rate taxpayers this means avoiding income tax at 40% on any savings interest while savers in the basic rate tax band save 20%.

It has always been the case that when a person dies, the income tax and capital gains tax advantages that come with their ISAs, die with them.   In the case of married couples this has always seemed very unfair.  Often the couple have saved together in order in order to make use of both ISA allowances.

In the Autumn Statement the Chancellor announced that ISAs would now be transferrable between spouses upon death.  The changes are effective immediately.  Accordingly, if one spouse dies it will now be possible for the surviving spouse to retain their own ISAs, together with the ISAs which belonged to their spouse, within the advantageous tax wrapper.  This new change is only effective between spouses.

Following the Autumn Statement, the Treasury have given further clarification on how surviving spouses will inherit their spouse’s ISA tax advantages when they die. The spouse will receive an additional allowance worth the same as their spouse’s ISA was worth at the date of death.  This allowance will be received by the surviving spouse even if they did not inherit the ISAs.  On the one hand this will give the surviving spouse flexibility over where they invest their Inheritance but it does mean that the deceased’s spouse’s ISAs may be subject to income tax and capital gains tax during the time it takes the Executors to administer the Estate.

For advice or further information regarding ISAs please contact Farleys’ experienced Wills, Trusts, and Probate department on 0845 050 1958 or alternatively you can email us.