When pension freedoms were announced there was surprise not just at the removal of all limits for taking benefits, but especially at how generous the death benefit rules became.
On “freedom day” (6 April 2015), there were also changes to the treatment of Isas on death, for the benefit of spouses/civil partners.
These changes are understandably a lot less talked about, but are underused and can be of considerable benefit.
George Osborne first announced the introduction of the “Additional Permitted Subscription (APS)” in the Autumn Statement on 3 December 2014.
|Number of individuals subscribing to various Isas (in thousands) in 2016-17|
|Age||Cash Isa||Stocks and shares Isa||Cash and stocks and shares Isa||All subscriptions||No further subscription||All Isa holders|
|25 - 34||1,678||109||54||1,840||922||2,763|
|35 - 44||1,179||305||57||1,541||1,521||3,062|
|45 - 54||1,299||560||92||1,951||1,957||3,098|
|55 - 64||1,375||575||97||2,047||1,935||3,982|
|65 and over||1,895||633||73||2,601||4,030||6,631|
In its original form the APS was available from 6 April 2015 for the spouse or civil partner of an Isa saver that had died on or after the date of the announcement.
The basic concept still applies, but tweaks to the rules have been made that affect deaths on or after 6 April 2018.
Additional Permitted Subscriptions – the basics
The APS is an additional Isa allowance available to the spouse/civil partner of a deceased Isa investor.
It is not an inherited Isa – despite how some providers might brand it.
The allowance lets the survivor make an extra Isa subscription that does not count towards their own allowances.
It is important to note that the deceased could leave their Isa assets to someone else – most commonly children – and this would have no impact on the availability of the APS to the spouse/civil partner.
It may of course, have a very significant impact on the survivor’s ability to make full use of the APS.
The rules state that the deceased and the surviving spouse or civil partner must have been living together at the date of death, and cannot have been separated under a court order, deed of separation or in circumstances where the marriage or civil partnership has broken down.
The survivor must provide a declaration to the Isa manager confirming this before they can make the APS.
ISA investors who died on or before 5 April 2018
Under the first version of the rules the amount of the APS was the value of the deceased’s Isa at their date of death.
For those that died on or before 5 April 2018 the Isa wrapper had to be removed from date of death – or the funds transferred to another account.
This meant any interest, dividends or gains that were paid after date of death were taxable in the hands of the estate.
If income tax had been deducted from a payment as long as the date shown on the tax voucher was prior to the date of death it was still possible for the estate to reclaim the tax that has been deducted.
Although these rules have changed for people that die now, it is still possible you may come across estates that are being dealt with where the death occurred before the rule change.
While it is not a requirement that the surviving spouse/civil partner is the beneficiary of the Isa assets, it is commonly the case that they are.