In his Autumn Statement the chancellor announced that Isas will join pensions in being free from tax when passed on to a surviving spouse or civil partner.
George Osborne announced that from next April, people will be able to pass on Isa investments on when they die.
“At the moment, when someone dies, the savings in their Isa lose their tax-free status and their spouse starts paying tax on that money.
“From today, I can announce that when someone dies, their husband or wife will be able to inherit their Isa and keep its tax free status,” Mr Osborne stated.
From today (3 December), if an Isa holder dies, they will be able to pass on benefits to their spouse or civil partner via an additional Isa allowance which they will be able to use from 6 April 2015.
The surviving spouse or civil partner will be allowed to invest as much into their own Isa as their spouse used to have, in addition to their normal annual Isa limit.
He also added that from next April the increased Isa limit will rise again to £15,240.
Mr Osborne also confirmed plans to abolish the 55 per cent ‘death tax’ on pensions, in addition extending this to joint life annuity policies and payments made during annuity guarantee periods.
“In this Autumn Statement, I confirm that the 55 per cent death tax that currently applies when you pass an unused pension pot on to your loved ones will be abolished.
“I can also tell the House today that we will ensure that people who die before the age of 75 with a joint life or guaranteed term annuity can pass that on tax free too.
“Pass on your Isa tax free. Pass on your pension tax free. We are delivering fairness for savers,” Mr Osborne proclaimed.
At the end of September, Mr Osborne told the Conservative party conference that no inheritance or income tax will be levied if pension funds are passed on as a lump sum.
He was also expected to abolish tax on annuity payments made to spouses after their partner has died, in order to bring it in line with the other ‘death tax’ changes.
As it currently stands, a surviving partner must pay tax on the income payments they receive from a joint life annuity, which ranges from a half to a third of the original income.
peter.walker@ft.com
