An Individual Savings Account (ISA) is a popular tax-free savings account in the UK, designed to help individuals save money without paying tax on the interest earned. Many people wonder what happens to their ISA if they pass away, and whether it can be passed on to their loved ones.
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Can an ISA be passed on - on death?
The answer is yes, an ISA can be passed on death. However, the rules surrounding the transfer of ISAs vary depending on the circumstances of the account holder's death.
If the account holder is survived by their spouse or civil partner, then their ISA can be passed on without losing the tax-free status. This is because ISAs are treated as part of the deceased's estate for inheritance tax purposes, and any assets passed to a spouse or civil partner are exempt from inheritance tax.
The surviving spouse or civil partner can choose to inherit the ISA as an additional allowance in their own name, which is known as an Additional Permitted Subscription (APS). The APS is equivalent to the value of the deceased's ISA at the date of death, and it doesn't count towards the surviving spouse or civil partner's own annual ISA allowance.
If the account holder isn't survived by a spouse or civil partner, then their ISA can still be passed on but the tax-free status may be lost. In this case, the value of the ISA is included in the deceased's estate for inheritance tax purposes, and any inheritance tax due is payable from the estate.
The beneficiaries of the deceased's ISA can choose to inherit the money as cash or transfer it to their own ISA. However, if the ISA is transferred to a beneficiary's own ISA, it will count towards their annual ISA allowance, and any interest earned will be subject to tax.
It's important to note that some ISAs may have specific rules and restrictions around inheritance, so it's essential to check with the individual provider to understand their terms and conditions.
In some cases, the transfer of an ISA after death may be subject to a Probate process, which involves obtaining legal approval to administer the deceased's estate. This can be a lengthy and costly process, and it's essential to seek professional advice from a solicitor or financial advisor to ensure that the transfer is handled correctly.
To make things easier for your loved ones, it's a good idea to include details of your ISAs in your Will or Letter of Wishes. This can help to ensure that your wishes are carried out and that your loved ones are aware of any specific instructions or restrictions around the transfer of your ISA.
In conclusion, an ISA can be passed on after death, but the rules surrounding the transfer vary depending on the circumstances. If the account holder is survived by a spouse or civil partner, then the ISA can be passed on without losing the tax-free status. If not, then the ISA may be subject to inheritance tax, and the transfer may be subject to Probate.
It's essential to seek professional advice to ensure that the transfer is handled correctly and to include details of your ISAs in your Will or Letter of Wishes to make things easier for your loved ones.
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