Personal finance experts estimate that almost nine out of ten savers may be missing out when a spouse or civil partner dies because they are not aware of the rules for ISAs and the Marriage Allowance.
On the death of a spouse or civil partner who holds an ISA, there is an additional, one-off ISA allowance that can be claimed. The ‘additional permitted subscription’ (APS) allowance is equivalent to the value of the deceased saver’s ISA. This is on top of the survivor’s own ISA entitlement (£20,000 for the tax years 2017/18 and 2018/19).
The survivor is entitled to the APS allowance even if they do not actually inherit the ISA. They can opt to use the allowance with the provider of the deceased’s ISA or a provider of their choice. There are time limits for using the APS.
HMRC estimates that at least 150,000 individuals who lose a spouse or partner each year could be eligible to take advantage of the APS. To qualify, the survivor must have been living with their spouse or civil partner at the date of death. They would not be eligible if they had separated under a court order or a deed of separation, or in circumstances where the marriage or civil partnership has broken down.
An application for APS should be made to the manager of the deceased’s ISA.
Marriage Allowance on the death of a spouse
Under the Marriage Allowance rules, an individual can transfer 10% of their personal allowance to a spouse or civil partner where the recipient is neither a higher or additional rate taxpayer. For couples who are eligible, using the allowance could bring tax savings of up to £230 per year.
The most common scenario in which Marriage Allowance is appropriate and worthwhile is where one of the individuals has little income and the other individual does not pay higher or additional rate tax. In such cases, the low-earning spouse would not have used their personal allowance.
Previous to the Autumn Budget 2017, the transfer was not allowed where one of the parties had died. Last November, it was announced that claims for the Marriage Allowance may be made in respect of a deceased spouse or civil partner, backdated for up to four years.
If you have recently been affected by the loss of a spouse or partner, you may prefer to delegate dealing with your tax matters at this time. Please get in touch if you would like our assistance.
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.