Partners hit by avoidable ISA tax charge

February 2019

An unnecessary tax charge on inherited ISAs could be resulting in thousands of bereaved partners missing out on a tax break, according to research.

Introduced in 2015, the additional permitted subscription is available to the spouse or civil partner of an ISA holder who has died.

The subscription provides an extra ISA allowance to the surviving spouse or civil partner, the value of which depends on when the death occurred.

For deaths before 5 April 2018, the value of the subscription is equal to the value of the deceased’s ISA at death.

For deaths after that date, the deceased’s ISA becomes known as a ‘continuing ISA’ and different rules apply to the value of the subscription.

However, a freedom of information request by Zurich suggests only 21,000 people took advantage of the rule in the 2017/18 tax year – an estimated 14% of those entitled.

Government figures stated there were more than 22.1 million ISA holders in the UK in 2017/18, while around 150,000 married ISA holders die each year.

As the average value of an inherited ISA stands at £55,000, some savers could be paying an average of £110 a year in tax they did not need to pay.

Alistair Wilson, head of retail platform strategy at Zurich, said:

“Despite being in its fourth year, the take-up of this tax break looks shockingly low.

“It is not clear what is stopping some savers from taking advantage of the [additional] allowance, and consumers might be baffled by the rules or simply unaware of them.

“People who miss out on the allowance will be hit by a tax bill that quickly eats into the returns on their savings and slows down the growth of their nest egg.”

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