Spouse/Civil partners to “inherit” ISA benefits on death

Under the former ISA rules, on the death of an ISA saver the ISA wrapper was removed and so the income and capital gains tax benefits of the ISA no longer applied.  The value of the fund would, however, pass free of inheritance tax if left to a spouse/civil partner.

Following an announcement in the Autumn Statement on 3 December, from 3 December 2014 the spouse/civil partner of a deceased ISA saver will be able to retain the ISA tax wrapper of the deceased’s ISA(s).

To facilitate this, from 6 April 2015 the surviving spouse/civil partner will be able “to invest as much into their own ISA as their spouse/civil partner used to have, on top of their normal annual allowance”.  This would seem to mean that the deceased’s ISA assets could be transferred to the survivor’s ISA(s) or the deceased’s ISA(s) could be re-registered in the survivor’s name – we await details on this.  Although the new rules are effective from 3 December 2014, transfers can only take place from 6 April 2015 and the time gap is presumably to enable providers to amend their systems to accommodate the change.

Undoubtedly, this will benefit those who have significant ISA savings and are likely to inherit ISA funds from their spouse, as not only will the fund(s) pass free of inheritance tax, there will now be no future income and capital gains tax on the inherited funds whilst they remain within the shelter of an ISA(s).

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