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What is a continuing ISA?
On death, any ISAs (Individual Savings Accounts) held are effectively frozen and no money can be paid to beneficiaries during the administration of the deceased’s estate. This is known as a ‘continuing ISA’. During this period, the continuing ISA maintains its tax efficiency.
When is a continuing ISA not a continuing ISA?
This occurs when one of the following three conditions are met:
- The administration of the estate is complete.
- The ISA is closed.
- It is three years after the person’s death.
What are the rights of the surviving spouse or civil partner?
If the deceased leaves assets held in an ISA to someone other than their spouse or civil partner, the spouse or civil partner still maintains the right to assume some benefits. One of these is an increased allowance equivalent to the value of the ISA assets, even if they do not receive any of the money. This is known as an additional permitted subscription (APS) and can be used regardless of what the deceased stated in their will or if they died without leaving any direction.
The APS allowance is the value of the money passed on at transfer, or the value at death, whichever is higher
The spouse or civil partner must have been living with the deceased for the APS allowance to apply. If the couple had separated or the partnership or marriage had broken down, the surviving partner cannot access the APS allowance.
Additionally, if the surviving partner is under 18 years of age, they cannot use a Junior ISA for the APS allowance. An adult product must be acquired.
A partner who is not married or in a civil partnership typically inherits the value of the ISA as cash.
What options does the spouse or civil partner have available?
Once conditions have been met, the surviving spouse or civil partner can choose where to transfer the inherited savings and elect to:
- Keep the money with the original ISA
- Put the money with their own ISA
- Open up a new cash or stocks and shares ISA and place the additional subscription
An APS allowance can only be transferred once, but if there is more than one ISA to inherit, it can come from multiple providers. Importantly, an individual can only have one cash ISA and one stocks and shares ISA per tax year, but these rules are not breached if an ISA is opened up for the purpose of an APS transfer.
How long does the spouse or civil partner have to act?
A surviving spouse or civil partner must act within a set time frame to apply to access the APS allowance:
- For ‘in specie’ transfers or keeping hold of the ISA in its existing state, there is a period of 180 days from when the beneficial ownership passes to the surviving spouse or civil partner for them to act.
- For cash subscriptions, this timeframe extends to three years from the date of death. After three years, the application needs to be lodged within 180 days of the completion of the administration of the estate.
Once the transfer has been made, the normal ISA rules apply and the money is treated as if it came from previous years’ subscriptions made by the surviving spouse or civil partner.
Continuing ISA’s and Additional Permitted subscriptions (APS)
Investments and the income from them can go down as well as up and past performance is no guarantee of future returns. You may not recover what you invest.
This material is not tax, legal or accounting advice and should not be relied on for tax, legal or accounting purposes. Quilter Cheviot Limited does not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting adviser(s) before engaging in any transaction.
Tax treatment varies according to individual circumstances and is subject to change. Trusts, estate planning, mortgage, tax: Trusts, Estate planning, Buy to Let Mortgage, Taxation and Inheritance Tax Advice are not regulated by the Financial Conduct Authority.
