Thousands of bereaved partners could be paying unnecessary tax on cash ISA savings inherited from loved ones, a freedom of information request has revealed.
Since 2015, married couples and civil partners have been entitled to an extra ISA allowance when their partner dies, known as an additional permitted subscription (APS). The allowance is equivalent to the value of a partner’s ISA account at the time they passed away.
A freedom of information request submitted to HM Revenue & Customs by Zurich found, however, just 21,000 people used the allowance to inherit a partner’s ISA balance in the 2017/18 tax year.
This is despite estimations from the Tax Incentivised Savings Association that some 150,000 married ISA holders pass away annually, which Zurich said suggested as few as 14% of grieving savers made use of the allowance.
The freedom of information request also showed that, in 2015/16, 15,000 people benefited from a deceased partner’s ISA allowance. The following tax year this increased to 25,000 people.
‘Shockingly low’ take-up
Under APS rules, if the deceased partner had £50,000 in savings when they died, for example, the living partner would be able to invest £50,000 tax-free on top of their own £20,000 annual allowance – taking their total allowance for the year to £70,000.
Zurich head of retail platform strategy Alistair Wilson said: “Despite being in its fourth year, the take-up of this tax break looks shockingly low. People who miss out on the allowance will be hit by a tax bill that quickly eats into the returns on their savings and slows down the growth of their nest egg.”