This is a short post to clarify the question of how and whether an ISA account can be inherited. I cover the technicalities of what happens to an ISA account upon the death of the investor in a separate post in more depth, see here.
Additional Permitted Subscription
When an ISA account investor dies their spouse, or civil partner is entitled to an allowance known as an additional permitted subscription (APS). This is an allowance the spouse can choose to subscribe into their own ISA account or not, and is entirely separate from their annual allowance of £ 20,000.00.
How much is the APS allowance?
For deaths pre April 6th 2018, the APS allowance was the valuation of the deceased’s ISA as at date of death. For deaths after this date, the APS allowance is the higher of either date of death valuation, or valuation at the date the deceased’s estate is finalised (or the ISA account is closed).
Continuing ISA accounts
Pre April 6th, 2018, ISA accounts lost their tax benefits at date of death. After this date the rules changed so that the deceased ISA kept it’s tax-free status until it’s closed. Deceased ISA accounts are now known as Continuing ISA accounts.
Transferring Assets from the Deceased’s ISA
It’s important to understand that the spouse is entitled to use the APS allowance regardless of whether they inherit the assets held within the deceased’s ISA. If they have inherited those assets, then the spouse can transfer the cash, and in some cases, the securities from the deceased’s ISA to their own ISA account. The spouse can open an ISA account purely for the purpose of utilising their APS allowance.
If the spouse does not inherit the deceased’s ISA assets, then they can use their own funds to utilise their APS allowance.
Where can you use your APS allowance?
You can use your APS allowance with any ISA provider that offers APS services. Note, not all ISA providers do so and are under no obligation to accept APS subscriptions. But all providers are obliged to transfer the allowance to another provider when requested.
Transferring your APS allowance to another provider
You do not have to use your APS allowance with the provider who managed the deceased’s ISA account.
You can request they transfer the allowance to another provider with whom you have an ISA account or intend opening one with.
Bear in mind, this transfer involves the old provider sending a declaration to the new provider stating the value of the APS allowance and giving them the authority to utilise the allowance on your behalf.
The APS allowance transfer is entirely separate from the deceased’s assets held within the ISA account. Though they often happen at the same time.
How long do you have to use your APS allowance?
You have 3 years after the date of death to use your APS allowance in cash, or 180 days after the administration of the estate has been completed.
If you have inherited the assets held within the continuing ISA account, then you can transfer the securities held in the deceased’s ISA, but this must be done within 180 days of the distribution of the assets to the spouse. In practice, this means 180 days after the executors have written to the ISA provider authorising the transfer of the assets to the spouse.