ISAs  

Surviving spouse can make use of little known Isa allowance

  • Describe what an additional permitted subscription to an Isa is
  • Explain how APS works, especially with regard to tax treatment
  • Describe what the time limits on APS are
CPD
Approx.30min
Surviving spouse can make use of little known Isa allowance

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
AgeCash IsaStocks and shares IsaCash and stocks and shares IsaAll subscriptionsNo further subscriptionAll Isa holders
Under 256682213704149852
25 - 341,678109541,8409222,763
35 - 441,179305571,5411,5213,062
45 - 541,299560921,9511,9573,098
55 - 641,375575972,0471,9353,982
65 and over1,895633732,6014,0306,631
Total8,0952,204

385

10,68410,51421,197

Source: ONS

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.

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. What is the additional permitted subscription for an Isa?

  2. For those who died on or before April 2018, there is still no tax applied to the APS whatsoever, true or false?

  3. For those who died on or after April 2018, the tax wrapper on the fund stays intact, true or false?

  4. How are subscriptions to an APS treated for the surviving spouse?

  5. Which of the following Isa do APS subscriptions face restrictions?

  6. What is the time limit for a cash subscription for an APS?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Describe what an additional permitted subscription to an Isa is
  • Explain how APS works, especially with regard to tax treatment
  • Describe what the time limits on APS are

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