ISA inheritance tax rules improve at last

The rules will change from 6th April 2018.

ISAs have always been a bit of an outlier when it came to inheritance tax as they are an otherwise simple, tax-efficient vehicle for savings and investments. But when it comes to death these tax benefits vanished.

In 2014, George Osborne announced that ISAs would become inheritable by surviving spouses and civil partners. At the time, nobody was clear what the then chancellor meant.

Unsurprisingly, when the plans were eventually revealed they were far from simple. Although a surviving spouse or civil partner could effectively take over a deceased partner’s ISA, the value used was based on the date of death, not the date of the transfer.

To add further complication, the ISA tax rules ceased to apply at death. They started again once the survivor’s inherited ISA was established.

This made a relatively straightforward and welcome idea an administrative nightmare.

Improvements to the ISA inheritance tax rules

In November 2017, regulations were finally approved to simplify this process considerably. Now, for deaths occurring after 5 April 2018, in most circumstances:

  • The ISA tax advantages of UK income tax and capital gains tax exemptions will continue throughout the period of estate administration.
  • The inherited ISA can include any increase in value during that period.

If you are in a couple and needed another excuse for contributing to an ISA, either as a tax-year-ending or tax-year-starting payment, the new inheritance rules are a good one.

If you are concerned or affected by inheritance tax rules, give us a call on 020 8559 2111. We can review your situation and advise you on steps you can take to reduce or eliminate your bill.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

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