Inheriting an ISA Allowance from your spouse

Under changes in the rules introduced in April 2015 –

You can inherit an ISA (Individual Savings Account) from your spouse and retain the tax benefits. Approximately 150,000 married ISA holders die each year so this change will benefit spouses or civil partners by increasing the amount that they can save by extending the tax advantages of an ISA wrapper.

ISAs have always been promoted as tax-efficient savings vehicles, but prior to this change in legislation, automatically lost this status on death. Many people diligently used each year’s tax-free ISA allowance to build up their savings, and in many cases the amount saved was considerable.

How the New Rules work in Practice 

The change in the rules means that the surviving spouse or civil partner is entitled to an additional allowance, an Additional Permitted Subscription (APS) limited to the value of the deceased’s ISA at the date of death.

So for example, in the 2016–17 tax year, if the deceased had an ISA worth £50,000 on their death, the surviving spouse will be able to make an APS to their own ISA up to £50,000, in addition to their own ISA allowance for the year of £15,240, totalling £65,240. Even if the ISA is left according to the deceased’s Will to someone else to inherit, the surviving spouse is still entitled to an APS of £50,000, although they would need to use their own money to fund it.

As bereavement is such a difficult time, this allowance is available for three years from the date of death, or 180 days after the completion of the administration of the estate, if longer, giving you time to rearrange your finances. Anyone whose spouse or civil partner died after 3 December 2014 is eligible. The APS allowance can be added to a cash ISA and/or stocks and shares ISA, and this can be with the original ISA provider or an alternative provider who accepts APS subscriptions.

If you haven’t subscribed to an ISA yet this tax year, it’s worth remembering that the individual allowance for 2016–17 stands at £15,240 and will increase to £20,000 from 6 April 2017.