Last year’s Autumn Statement provided another opportunity for George Osborne to make Individual Savings Accounts (ISAs) more attractive to investors and he duly obliged.
Previously a range of welcome changes has included broadening the scope of allowable investments – to incorporate retail bonds, peer-to-peer lending and Alternative Investment Market shares – and a significant increase in the annual allowance.
Now partners will be able to inherit a deceased spouse’s ISA account or accounts.
Prior to this, ISAs lost all their tax benefits on the death of the holder and formed part of their estate for inheritance tax purposes. The new rules mean spouses can preserve any tax-free income stream their partner had received.
The new structure is complicated – technically, the ISA wrapper and its tax benefits still disappear on death and the investments are still theoretically part of the estate for inheritance tax purposes. This means that if the ISA is assigned to anyone but the spouse, it will be taxed as before. It is only because there is no tax on inter-spouse transfers that it escapes under the new rules and it is only through the additional one-off allowance to the surviving spouse that – from 6 April 2015 – the ISA retains its tax-sheltering benefits.
From this tax year, surviving spouses will receive a one off contribution allowance for their own ISA equal to the value of the ISAs held by their recently deceased partner. This allows a transfer of funds from their deceased partners ISA into their own ISA.
The goal is for the surviving spouse to be better able to secure their financial future and enjoy the tax advantages they previously shared as a married couple.
The ISA limit is also set to increase in April to £15,240. After the significant rise announced last year, this year’s rise is linked to the September inflation figure, as will be the case in future.
If you would like to discuss how you may benefit from the ISA rules changes please get in touch with Platinum and one of our team will be happy to explain the new rules.