4th December 2014
Married couples and civil partners have been urged to revisit their wills to adjust to the planned system where they can transfer their ISA allowance to their partner when they die. Hargreaves Lansdown says couples should review their wills or risk missing out on this new tax break and has given a detailed breakdown of how the new system will work subject to final legislation.
HL says that under the new system, the surviving spouse will be given an additional, one off ISA allowance, equal to the value of the deceased’s ISA holdings which will enables them to re-shelter assets which were in a spouse’s ISA into an ISA in their name.
The firm says that the average ISA value for the over 65s is £29,880 on the latest HMRC figures while the average for HL Vantage clients on death is £57,000.
HL has also given a worked example of how it will work:
1. Investor holds £50,000 of ISA savings and investments and dies on the 3rd December 2014.
2. Following probate, the value passes to the surviving spouse.
3. On 6th April 2015, the spouse has a one off opportunity to shelter £50,000 into an ISA in their name in addition to the £15,240 ISA allowance, giving a combined allowance of £65,240.
4. This could be subscribed to a new ISA or an existing ISA.
From the date of death to the distribution of the value at probate, the ISA tax wrapper status is lost and the £50,000 becomes subject to income tax on any interest or dividend income generated or capital gains tax where gains are made. Any tax due in this period would normally be settled by the executor or personal beneficiary.
The value of the ISA may increase or decrease from the date of death to the date of distribution, but the special one off ISA allowance will be for the value of the deceased’s ISA at the date of death.
If the value has fallen between the date of death and the date of distribution, there will be a shortfall between the value of assets transferred and the special ISA allowance. This could be made up with other money (there will be no direct link between the assets transferred and which are sheltered in ISA, it’s all based on an allowance. This makes it much easier).
If all liquid assets are passed to children or other beneficiaries, the surviving spouse may not have sufficient money to use all the special allowance and the unused part will be lost. This makes it important for couples to ensure their ISAs are left to each other and may require a redrafting of their Wills.
Unmarried couples cannot benefit from this tax break.
The timescales for taking advantage of the new special allowance are not yet clear but allowing a period from the date of death until the end of the next tax year would make sense, allowing at least a whole tax year to use the allowance.