RegulationDec 3 2014

Market View: Isa death tax cut a ‘fair outcome’ for savers

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Commentators across the industry have today (3 December) have welcomed chancellor George Osborne’s announcement that Isas will be free of tax when passed on to spouses after death, mirroring a similar cut made in relation to pension schemes.

In his Autumn Statement the chancellor announced that from next April, people will be able to pass on Isa investments to their surviving spouse or civil partner, who will also be able to benefit from the deceased’s annual allowance in additional to their own.

Magician’s assistant

For Calum Bennie, savings expert at Isa provider Scottish Friendly, today’s announcements are representative of the “magician’s glamorous assistant” of the Autumn Statement, which also included dramatic stamp duty reforms, changes to personal and business taxes and an additional tax bill for banks.

“There will be a smile on the faces of savers across the country this week. If the ‘rabbit out of the hat’ was stamp duty, then the changes to Isas next year was the magician’s glamorous assistant.

Mr Bennie said: “The further extension to the amount people can save tax free will be universally welcomed and the removal of tax on savings that are passed on after death is the icing on the cake.

“The chancellor has essentially announced that ‘your savings are yours, we have no right to take from you’. This is a good first step in ensuring that families benefit from generational wealth, meaning that parents who have spent a lifetime saving for their children, no longer have to worry about this being eaten away in tax following their death.”

Mr Bennie added the problem is that these changes are being introduced in a low interest rate environment.

“However, the problem is that these changes are being introduced against a backdrop of a low interest rate environment, meaning that savers are still getting a poor return on cash savings accounts.

“That said, the UK economy is one of the fastest growing major economies in the world, and as such, savvy savers should be looking to focus on investment based plans instead of sloth-like cash savings accounts.”

Carol Knight, operations director at the Tax Incentivised Savings Association said: “Today’s announcement allowing the transfer of Isa assets to spouses and civil partners on death provides a fairer outcome, especially for women in retirement, and is one we have long advocated.

“Often a wife or civil partner will have savings in a husband’s name and can lose out significantly from the current rules whereby investments held by deceased Isa savers lose their tax-free status before they are inherited.

“Allowing Isa savings to be transferable without leaving the Isa wrapper will enhance the greater flexibility introduced earlier in the year and act as a further incentive to save in Isas.”

Danny Cox, chartered financial planner at Hargreaves Lansdown, made comments which resonated with Ms Knight’s views that the changes held fairer to people, particularly couples.

Mr Cox said: “Couples almost invariably manage their money jointly using individual tax wrappers such as Isa to shelter their savings and investments from tax. This change has righted a wrong in the tax system which was the source of deep frustration and additional cost for surviving spouses.”

Mark Stopard, head of product development at Partnership welcomed the new tax free Isa inheritance decision saying that “in the current low interest rate envrionment, the opportunity to leave your Isa savings to your spouse tax-free is excellent news.”

Similarly, Paul Broadhead, head of mortgage policy at the Building Societies Assocation, welcomed the new decision.

He said: “We also welcome the news that the Isa allowance will rise in the next tax year and that Isa’s will keep their tax-free status when passed on to a spouse on death. All in all we’ve seen some very positive moves for savers and borrowers today.”

ruth.gillbe@ft.com