Passing on a Tax-Free Status Post Death

The death of a spouse or civil partner before 3 December 2014 used to mean the loss of the tax-free status for ISA holdings. With effect from 6 April 2015, a claim can be made to transfer the value of a spouse or civil partner’s ISA holding at death irrespective of the value. This is provided the deceased and surviving spouse or civil partner were living together at the date of death.

Regaining tax-free status

The change has come about because couples tend to save from joint incomes and the loss of the tax-free status on the death of a partner was viewed as unfair, possibly creating unexpected tax charges. The new legislation provides for surviving spouses and civil partners to effectively regain the tax-free status of the value of their partner’s ISA holdings at death and is identified as the “Additional Permitted Subscription” (APS). This is in addition to the annual subscription limit of £20k for the 2017-18 tax year.

Claims made from 6 April 2015 apply to deaths on or after 3 December 2014 and there are separate time limits for cash and “in specie” transfers. Stocks and shares APS transfers are limited to 180 days from the date of beneficial ownership passing to the surviving spouse or civil partner. Cash APS transfers are generally limited to within 3 years of death or 180 days from completion of the administration of the estate if later. There are transitional rules for deaths between 3 December 2014 and 5 April 2015, but the general cut-off date in these circumstances is 5 April 2018.

Take action before April 2018

As ISA subscriptions in any form are subject to IHT, where the above may apply, consider the impact of any APS transfers on the survivor’s IHT position. It is important to review and take action before 5 April 2018.

If you would like to discuss the above in more detail, please contact our tax team on 01903 234094

A version of this blog originally appeared on the website of one our MHA association member firms, MHA Moore and Smalley.