Most will be familiar with the tax planning opportunity that arises when one spouse or civil partner dies, and the surviving partner (the survivor) can make an additional permitted individual savings account (ISA) subscription. That said, it’s clear from many of the enquiries I receive, particularly where there has been significant stock market movement up until the additional subscription is made, that putting theory into practice isn’t as straightforward as it may seem.
A survivor, provided they were deemed to have been living with their spouse or civil partner at the date of death, is entitled to make an additional ISA subscription following the death. Originally the additional permitted subscription could not exceed the total value held in the deceased’s ISA(s) at the date of death.
From 6 April 2018 the concept of a ‘continuing account of a deceased investor’ was introduced. This allows ISA investments to retain their tax-exempt status following the death of the account holder during the administration of the deceased’s estate. This exemption applies for a maximum of three years after the account holder’s death and applies only to investments retained in the ISA.
In addition, if the value when the account ceases to be an account of a deceased investor has increased, and the additional permitted subscription has not previously been used, it is this higher value that can be used as the additional subscription limit.
One common misunderstanding is that the survivor is required to inherit the deceased’s ISA assets in order to benefit from the permitted additional subscription, but this is not the case.
The survivor can make one or more additional permitted subscriptions providing they do not exceed the additional permitted subscriptions limit. However, it’s important to check with the relevant ISA provider that they’re prepared to accept more than one. If they’re not, then any unused balance will unfortunately be lost.
There are, as alluded to earlier, time limits that apply. In the case of non-cash assets, such as stocks and shares, that were held in the deceased’s ISAs and inherited by the survivor, then it is possible to transfer these in-specie. Such subscriptions must be made within 180 days of the survivor becoming beneficially entitled to the non-cash assets. HMRC takes a pragmatic view on this but will query cases where there is evidence of avoidance or manipulation.
It’s important to note, and this may create problems if little thought is given to potential outcomes, the value of a subscription comprising non-cash assets is the value of the assets at the date the subscription is actually made. Depending on individual scenarios, the subscription limit may not be fully utilised or may even be exceeded.
If values fall between death and subscription, it’s possible, providing the ISA provider allows, for the survivor to make the full in-specie transfer but also top-up any shortfall with cash to ensure the additional permitted subscription limit is fully utilised. If, on the other hand, values increase over this period, and say the estate takes over three years to administer, then some of the deceased’s ISA holdings could effectively become non-transferable into the survivor’s ISA.
The option of an in-specie additional permitted subscription is only available where the survivor uses the same ISA manager as the deceased.
In the case of cash, subscriptions must be made within three years from the date of death or, if later, within 180 days after the administration of the estate is completed. The survivor can use any ISA provider who is happy to accept additional permitted subscriptions.
As far as the survivor is concerned, the normal rule that an investor can subscribe only to one ISA of each type in a tax year rule is ignored for these purposes and so is the requirement of having to be UK resident with regard to the additional permitted subscription.
As can be seen, it’s a complex theory to undertake and it’s important to ensure that all factors are considered in order to safeguard the survivor’s late partners ISA limit. Failure to do so could prove costly and a golden opportunity could be wasted.
Neil MacGillivray is head of technical support at James Hay