If you have an ISA, you can leave the tax-free allowance to your husband, wife or civil partner when you die. It’s called the inherited ISA allowance. Find out how to inherit an ISA.
How to inherit an ISA
Since April 2015, married couples and civil partners have been able to inherit each other’s ISA allowance on death. This new rule applied to anyone who died on or after December 3rd 2014, which was the date of the Autumn Statement that year.
SAVVY TIP: You can’t actually inherit an ISA, but you can inherit their ISA allowance on top of anything you’ve already saved or invested in your own ISAs. This allowance will be equivalent to the amount your husband, wife or civil partner had in their ISA(s) at the time they died.
The extra allowance is called an ‘additional permitted subscription’ or APS. I’ve also referred to it as the inherited ISA allowance, because I think it’s a more user friendly term. Banks seems to use both terms equally. You get one allowance for each ISA your late husband, wife or civil partner held with a particular ISA provider.
SAVVY TIP: You and your husband, wife or civil partner must have been living together when he or she died in order to inherit their ISA allowance.
You have three years from the date your husband, wife or civil partner died to use your inherited ISA allowance/additional permitted subscription, or 180 days from when probate has been completed (whichever is later).
SAVVY TIP: If your husband, wife or civil partner died between December 3rd 2014 and April 5th 2015, the three year/ 180 day timescale starts from April 6th 2015.
These are the steps to take:
- Contact the ISA provider(s) that your husband, wife or civil partner had an ISA with to tell them he or she has died.
- Include your late husband or wife’s name, address, National Insurance number (if possible), date of birth, date they died and the date you married or entered a civil partnership.
- You should also include a statement saying that you are the wife, husband or civil partner of the ISA owner and that you were living together when they died.
- The ISA providers are obliged to tell you how much any ISAs they hold in your late partner’s name are worth.
- Register your inheritance ISA allowance(s) with the provider(s) your late husband, wife or civil partner has ISAs with. It doesn’t mean you have to keep the ISA money with them. It just means you’ve ringfenced an allowance equivalent to the money saved or invested within the ISAs.
- You should close your late husband, wife or civil partner’s ISA if it’s a cash ISA. You can then open an inherited allowance ISA or additional permitted subscription ISA. If your late partner had a stocks and shares ISA, you may be able to transfer the money directly to your new inherited ISA. This means you don’t have to sell shares and buy them back again. It’s called an ‘in specie’ transfer.
SAVVY TIP: If you use an in specie transfer, you only have 180 days from when you inherit the stocks and shares in which to transfer it to a new provider, not the three years or 180 days from when administering the estate is concluded as I mentioned at the start of the article.
Using the inherited ISA allowance
This is what you should bear in mind if you want to use your husband, wife or civil partner’s ISA allowance after they’ve died.
- Once you’ve registered your inherited ISA allowance, you can transfer it to another provider. You can only make this transfer once. However, once you’ve opened your additional permitted subscription/ inherited ISA allowance and paid money into it, you can transfer it again. Some providers accept these transfers, others don’t.
- You can open a cash or stocks and shares ISA, but you can’t use the allowance towards a junior ISA.
- You can use your inherited ISA allowance to add to an ISA you already have, or you open a new ISA. You can use the additional permitted subscription even if your husband, wife or civil partner left the money that was in his or her ISA to someone else. However, you must pay in your own money and it can’t come from an existing ISA you have.
Who offers ISAs for the inherited ISA allowance?
Not all banks and building societies will let you open an inherited allowance or additional permitted subscription ISA. Some providers have specific products, others let you open any of the cash ISAs they offer if you have an inherited ISA allowance.
SAVVY TIP: If you’re searching online for a cash ISA you can open, be aware that there’s no consistency of terms used by banks to describe their inherited allowance ISAs. Some call them ‘spousal ISAs’, some call them ‘deceased spouse ISAs’, others use the official term ‘additional permitted subscription ISA or APS ISA and some describe them as inherited allowance ISAs.
This isn’t a comprehensive list, but these are some rates being paid on cash ISAs as I write this:
Barclays pays 0.4% on balances of £1 to £14,999, 0.5% on balances of £15,000 to £29,999 and 0.6% on balances of £30,000 or over on its APS cash ISA.
Coventry building society pays a whopping 1.75% on its additional allowance ISA, but only if your late husband, wife or civil partner had an ISA with them.
M&S Bank pays 0.5% on its Advantage ISA. You can also open a fixed rate ISA if you prefer. These ISAs are available to all, not specifically for the inherited ISA allowance.
Nationwide pays 0.5% on its inheritance ISA (the same as its general easy access ISA)
NS&I pays 1% until April 30th and 0.75% from 1st May on its Direct ISA inherited ISA allowance account (the same as its ordinary Direct ISA)
Santander pays 0.1% on £1 – £9,999 and 0.5% on £10,000+ on its inheritance ISA.
Skipton building society pays 0.5% on its legacy ISA, no matter how much or how little you have.
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