Since 6th April 2015, any ISA gains accumulating following the death of the account holder have been subject to tax. In the new tax year, this will change.
New legislation means that when an ISA holder dies on or after 6th April 2018 (the start of the new tax year), any subsequent gains in the deceased’s existing ISAs will be designated a “Continuing account of a deceased investor”, or “Continuous ISA”, which retains the ISA’s tax-advantageous wrapper for up to three years.
Three more years tax-free
A Continuing ISA will keep gains within a tax efficient ISA wrapper for up to three years following the date of the investor’s death. Any growth during this period, either by addition of interest in cash ISAs or through fund growth in Stocks & Shares ISAs, will be exempt from tax.
A Continuous ISA remains effective until the formal closure of the deceased’s estate, usually by Grant of Probate (the completion of the administration of the deceased’s estate). If it is still effective on the third anniversary of the investor’s death and the account has not been closed, the account will cease to be a Continuing ISA. In these circumstances, the ISA Manager must remove the ISA wrapper on the next working day and all subsequent income and/or gains will then become taxable in the hands of the estate.
A step forward
As specified now, to qualify, the deceased investor and the surviving spouse or civil partner must have been living together at the date of death. They cannot be separated under a court order, under a deed of separation or ‘in circumstances where the marriage or civil partnership has broken down’.
Rules & restrictions
Where the ISA investor dies on or after 6th April 2018, the APS can be either the value of the deceased investor’s ISA at the date of death or the value of the ISA at the point that the ISA ceases to be a Continuing ISA, whichever is the higher. But whichever choice is made, this must apply to all ISAs belonging to the deceased investor with all other providers.
Once the Continuous ISA takes effect, no further subscriptions can be made and accounts cannot be transferred to another ISA manager. For cash ISAs, the flexible ISA rules will not apply.
Changes are set to apply to all ISA account types except Junior ISAs.
Where it started
Preparing for change
It’s our job to ensure we, and you, are aware of legislative changes that could have positive implications as part of your financial planning strategy. As well as planning and implementing these strategies, personal advisers are able to assist with various aspects of financial planning as clients adjust to changing (and at times challenging) circumstances.
To find out whether Courtiers can help with your personal tax circumstances and/or other financial ambitions, please speak to your adviser or contact us.
Steve Hudson DipPFS
Tax treatment depends on individual circumstances and may be subject to change in the future.
Warning – the views expressed by Courtiers in this summary and any video and video transcripts, are reached from our own research. Courtiers cannot accept responsibility for any decisions taken as a result of reading this document, watching the featured video or reading the video transcript and investors are recommended to take independent professional advice before effecting transactions. The price of stocks, shares and funds, and the income from them, may fall as well as rise. Past performance is not necessarily a guide to future returns.
We do not endorse nor accept responsibility for the content of any website not operated by Courtiers which you may visit by following a link from this article.