ISA rules for bereaved savers

Bereaved savers are often confused by complex rules on how much of their partners’ ISA allowance they can inherit.

Widows and widowers have been able to claim an extra ISA allowance called the Additional Permitted Subscription (APS) since 2014.  The size of this extra allowance is equal to what their partner had in their ISA when they died.  It is on top of the usual ISA Allowance (£20,000) for the tax year beginning April 6 2018.

Some banks and building societies offers ISAs for this money, with names such as inherited ISAs, Legacy ISA or Additional Permitted Subscription ISA.  Others offer ordinary cash ISA accounts.

New rules introduced in April mean that how much you get now depends on when the partner died.  If they died between December 4, 2014, when the APS was first introduced, and April 5 2018, their ISA loses their tax-free status from the date of death.  This means any interest paid while the estate is being wound up is taxable and cannot be used to boost the APS.

If a husband or wife had £30,000 in their account when they passed away within this timeframe, this would be all they get as their extra Isa allowance.  However, if they died after April 5th this year, any interest paid while the estate is being wound up is also tax-free.

This means that, if it takes a year or more for the family to go through probate they will not lose out.

John BaxterComment