Confusion over why bereaved savers aren’t taking tax break

Confusion over why bereaved savers aren’t taking tax break

Platforms have denied they are to blame for low take-up among bereaved clients of an Isa tax break resulting in industry experts questioning why so many people are missing out.

Married couples and civil partners have been entitled to the additional permitted subscription (APS), an extra Isa allowance, when their partner dies since 2015.

Freedom of Information data obtained from HM Revenue & Customs by Zurich, however, found that just 21,000 people used the rules to inherit a partner’s Isa balance in 2017 to 2018.

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Under APS rules, if a partner had £50,000 in Isa savings when they died, the surviving partner would be able to invest £50,000 tax free on top of their own £20,000 annual Isa allowance – taking the total allowance for the year to £70,000.

The low numbers of take-up suggested that bereaved partners were not being made aware of the rules that could see them hit by a tax bill.

But several platform providers said they actively promote APS and actively take steps to ensure bereaved relatives have all the information required.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “When someone contacts us to tell us that someone has died, once we have seen the death certificate, we send them a pack, explaining what they need to do, and including all the forms they need to use.

“This includes an explanation of APS and how it works – along with an APS form.

“We know there’s a lot to do when someone passes away, so we stay in touch, and send them letters letting them know what they need to complete.

“If they have any questions, we have a specialist team they can call, and we’ll talk them through the process.”

Rob Morgan, senior analyst at Charles Stanley, said his platform had “near 100 per cent take up in terms of surviving spouse’s using the allowances in respect to Isas with us”.

He said: “We suspect that this is mostly because many of our clients have a good grasp of their personal finances, but the fact that we always inform the surviving spouse of the allowance certainly helps.

“Occasionally we get queries that suggest that the survivor knows little about this allowance, and knows of it only because they’ve received our notification. 

“We then make sure that they know what this allowance is and what documentation is needed to take it up.”

The Tax Incentivised Savings Association (Tisa) estimates 150,000 married Isa holders pass away annually – which Zurich says could suggest as few as 14 per cent of grieving savers made use of the allowance in the last tax year.

According to the data obtained by Zurich, in the 2015 to 2016 tax year, just 15,000 people benefited from a deceased partner’s Isa allowance.

This increased to 25,000 people in 2016 to 2017, who inherited £1.1bn, before falling to 21,000 in 2017 to 2018, with savers sheltering the same amount.

In 2017 to 2018, the average annual APS was £55,000, up from £45,000 in 2016 o 2017 and £40,000 in 2015 to 2016.