New rules allow savers to pass on Isas after death

New measures announced in today’s Autumn Statement mean people will be able to pass on their individual savings accounts (Isas) to their spouse when they die.

Previous rules had removed the tax-exempt status of Isas on the savers’ death, meaning their widow would have to start paying tax on the pot.

But chancellor George Osborne in his Autumn Statement today revealed the rules will be changed in an effort to reward savers and encourage them to remain invested, if they have shares in funds.

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He said: “From today when someone dies their husband or wife will be able to inherit their Isa and keep its tax free status.”

The new rule will work by giving the surviving spouse a one-off Isa allowance equivalent to the total pot of the deceased spouse.

For anyone dying from December 3 onwards, that Isa allowance would only become usable by the start of the next tax year in April 2015.

However, the cash in the Isa would still be subject to inheritance tax because it is considered part of the estate of the deceased.

Danny Cox, chartered financial planner at Hargreaves Lansdown, said: “This change has righted a wrong in the tax system which was the source of deep frustration and additional cost for surviving spouses.”

Carol Knight, operations director at Tisa: “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.”

Combined with previously announced measures to allow people to pass on their pension tax-free, Mr Osborne said the government was commited to “delivering fairness for savers”.

Mr Osborne also announced that the limit of the new Isa (Nisa) would be raised from £15,000 to £15,240 in April 2015.