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Inheriting an ISA - The New Rules

View profile for Guy Birtwistle
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The investments of most people nowadays will include cash ISAs and/or stocks and shares ISAs. The benefits of holding these investments have recently increased.

For the current tax year (2015/2016), the annual subscription allowance for ISAs is £15,240. If your spouse or civil partner died on or after 3rd December 2014, subject to certain conditions, you can inherit their ISA allowance.

Eligibility for Inheriting an ISA Allowance

The main HMRC rules as to eligibility can be summarised as follows:

  • The surviving spouse must have been living with the deceased at the time of their death; so the measure does not benefit separated couples.
  • The transferred ISA allowance is limited to the value of the deceased’s ISA at their date of death.
  • The inherited allowance can be used in the same investment as the deceased’s or with another investment manager of the survivor’s choice.
  • No one else is entitled to this transferred allowance other than the surviving spouse or civil partner, even if they have received the assets from the ISA.
  • In respect of cash ISAs, the claim to transfer the allowance must be made within 3 years of the ISA investment company being notified, or (if later) 180 days after the administration of the estate ends.
  • In respect of stocks and shares ISAs, the claim period is 180 days.
  • The investment by the surviving spouse can be made to a cash, or stocks and shares ISA.

Example of Inheriting an ISA Allowance

On her death on 6th December 2014, Maud had £50,000 invested in cash ISAs and £60,000 invested in a stocks & shares ISA.  Maud’s will leaves her cash to their son and the stocks & shares to her surviving spouse, Frank.  Even though Frank has not inherited the cash he can invest the £60,000 in a cash or stocks & shares ISA and he can do the same for the £50,000 or he can have the stocks & shares transferred to him without them being encashed first.

Before making any investment decision the surviving spouse should take independent legal advice.

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