Did you know that your civil partner or spouse can inherit your ISA savings without being subject to inheritance tax?
How does inheritance tax work?
Here are some inheritance tax basics:
- Nil-rate band: similar to the Personal Allowance, this is the amount an individual can leave behind without being liable for any inheritance tax. Currently, the inheritance nil rate band is any amount up to £325,000.
- Inheritance Tax rate is 40% on any amount over that £325,000.
- Residence nil-rate band: if you are also leaving the family home as part of your total estate, there is an extra £150,000 residence nil-rate band. This means that your ‘direct descendants’ can be left an estate of £475,000 tax free.
- Direct descendants: this means children, grandchildren, step children, foster children or adopted children.
- As a spouse or civil partner, you can receive all the assets of a deceased partner without paying any inheritance tax. This includes property and investments.
How do ISAs save on inheritance tax?
There have been new ISA regulations since the start of the 2016-17 tax year called ‘additional permitted subscription’. When you die, your ISA savings allocation is passed to your civil partner or spouse and they become entitled to this extra ISA allowance (in addition to their own). This essentially means that your ISA savings remain in their extra ISA account and are not subject to capital gains tax, income tax or dividend tax. The amount of this ‘additional permitted subscription’ is determined by how much you have in your ISA account when you die.
As reported by inews, Zurich insurance’s research found that only 14% of those who qualified actually used this ISA allowance able in the last financial year.
Are there any other criteria for the ISA inheritance allowance?
There is a time limit on this ISA allowance. You have three years from the date of death, or 180 days after the estate administration is concluded to submit your claim.
It is also worth noting that a spouse or civil partner is entitled to an ISA allowance up to the amount you leave to them – regardless of whether or not this was originally in an ISA. So, you can leave your ISA savings to other individuals and your spouse or partner can still benefit from the extra ISA allowance.