Spousal bereavement is an unimaginably difficult time. Not only are you having to process your grief, but there is the whirlwind of sorting through the estate and finances.
In this midst of the complexities, many people end up needlessly paying tax on assets and money inherited from their lost loved one – particularly when it comes to ISA savings.
Most people need all the emotional, relational and financial support they can get during their bereavement. So make sure you don’t miss out on these important tax breaks below.
Keep your tax-free wrapper
In 2015, the UK government introduced the Additional Permitted Subscription allowance (APS). This means that if your spouse or civil partner dies, then you can claim extra ISA allowances.
Normally, in 2018-19 you can put up to £20,000 per year into an ISA (or set of ISAs) without the amount being liable to tax. Under the APS scheme, however, you can inherit your deceased spouse’s/civil partner’s ISA savings without the amount being taxed.
The APS scheme is not widely known, unfortunately, so it is estimated that as many as 15% of widows are missing out on these benefits. With the average APS claim currently standing at around £55,000, clearly more needs to be done to inform grieving people about this important source of financial provision and support.
Here are some important things to know about the APS scheme:
● You can apply for the additional ISA allowance if your spouse or civil partner died on or after 3 December 2014.
● You must have been living together at the time of the death. You must not have been separated or estranged from your spouse or civil partner.
● Subscriptions cannot be made to or from a Junior ISA.
● Non-UK residents can make subscriptions.
● You can make the subscription to a wide range of different ISA types including stocks and shares, innovative and cash ISAs.
How APS subscriptions are processed
As the surviving spouse or civil partner, you will need to speak to the deceased’s ISA manager to begin the APS process. This means providing them with sufficient evidence that they are satisfied you are their client’s surviving spouse/civil partner.
Important information you should consider submitting to the ISA manager therefore include:
● Your name and physical address.
● National insurance numbers.
● Dates of birth, marriage/civil partnership and the date of the death.
You will likely need to submit this information and other important details to the ISA manager via a formal application form.
In some cases, someone else might make an APS subscription on your behalf – for instance, if they hold Legal Power of Attorney (LPA). In this instance, the ISA manager will need to see a copy of the LPA and check the relevant provisions.
Valuing the deceased’s ISA(s)
It isn’t always clear how much your spouse/civil partner has in their ISA(s), and it’s important to establish this early on.
For instance, stocks and shares ISAs need to be properly valued so the ISA manager knows how much to put into your account. This can get complicated, as it involves referring to obscure laws and regulations such as section 272 Taxation of Chargeable Gains Act 1992.
Essentially, the ISA manager should carry out this valuation legwork for you. It’s a good idea to get the advice of a professional financial adviser particularly at this stage, who can look over the ISA manager’s valuation and ensure you are getting a fair deal.
Things can become even more complicated, unfortunately, depending on the date your loved one died and the number of ISAs they held.
If they died before 6 April 2018 and held numerous ISAs, then the ISA manager needs to take into account a single additional permitted subscription limit. This will need to account for the total value of all of the deceased’s ISAs at the time of their death.
If your spouse or civil partner died after the 6 April 2018, however, then the rules are slightly different. Here, the single additional permitted subscription limit is instead determined by the total values of each ISA at the time it ceased to be a “continuing account”.
Confused yet? Don’t worry if you are. This is a big reason why many bereaved people miss out on important tax benefits during this difficult time. Yet with the help of a professional financial adviser, you can make sure your interests are protected and get the help you need to navigate this complex tax landscape without it feeling overwhelming.
Time limits
One important detail to bear in mind is the time restrictions on APS. If the APS is made as stock, for instance, then your subscription must be completed within 180 days of your spouse’s / civil partner’s assets distribution date.
If, however, the APS is being made in cash then you have three years from the date of death to complete the subscription. Or, you have up to 180 days following completion of the administration of your spouse’s / civil partner’s estate. Whichever happens first.
Bear in mind that if you do not act within the relevant timeframes, then you might need to gradually funnel your spouse’s / civil partner’s ISA savings into your own in order to minimise the tax involved.
For instance, if they had £60,000 in ISA savings and you contribute nothing to your own ISA(s) during a given tax year, then in 2018-19 you could put £20,000 of your spouse’s / civil partner’s ISA savings into your own ISA(s) without attracting tax. You would need to do this each financial year, however, over three years in order to move this money without facing tax.
