Thousands of bereaved partners could be incurring unnecessary tax bills because they fail to take advantage of an Isa transfer allowance.
According to the Tax Incentivised Savings Association (TISA) up to 150,000 married Isa holders die every year.
However, just 21,000 people took advantage of a little-known tax-saving scheme in 2017-18 according to a Freedom of Information (FOI) request obtained by financial provider Zurich.
The scheme allows the surviving partner to expand their Isa allowance to include all of the funds from their deceased spouse’s accounts.
Since 6 April 2015 it has been possible for the surviving partner of a marriage to be able to absorb their partner’s Isa savings without incurring a tax charge. This is called the “additional permitted subscription” or APS allowance.
For instance, if a person dies with £50,000 in an Isa, the remaining spouse would be eligible for a larger than usual Isa allowance for that tax year. In effect the spouse would have an allowance of £70,000 instead of £20,000.
Alistair Wilson, Zurich’s head of retail platform strategy, says: “Despite being in its fourth year, the take-up of this tax break looks shockingly low.
“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.”
Figures from HMRC show that the initial uptake of the tax perk has been low in consecutive tax years. See the table below:
|Tax year||Number of APS reported||Value of APS reported|
Source: HMRC, January 2019
HMRC says the average amount that bereaved spouses received in extra allowance was £55,000.
Mr Wilson adds: “With the average value of an inherited Isa standing at £55,000, savers could be giving away £110 a year which they could have legitimately avoided.”
“It’s not clear what’s stopping some savers from taking advantage of the allowance. Consumers might be baffled by the rules, or simply unaware of them. Not all providers are obliged to accept a transfer of an APS allowance, which might also be a barrier holding savers back.”
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How to obtain additional permitted subscription allowance
If you have been bereaved of your spouse who had money saved in an Isa account, you can apply for the APS allowance to the provider of the Isa your partner held the money with, or to a different provider who agrees to accept the subscription.
HMRC stipulates that the surviving partner must provide their spouse’s Isa provider with the following information when making an APS request:
- the full name of the deceased
- the permanent residential address of the deceased at the date of death
- the date of birth and date of death of the deceased
- the deceased’s National Insurance number (if known)
- the date the marriage or civil partnership with the deceased took place
- the identity of the account manager who managed the deceased’s Isa
These need only be provided when the first additional permitted subscription is made to the Isa provider.
Then, when making an additional permitted subscription, a surviving spouse must make a declaration confirming:
- they are the surviving spouse of the deceased
- they were living with the deceased at the date of the deceased’s death
- the subscription is made under the provisions of regulation 5DDA of the ISA regulations
- the subscription is being made as either:
a. an ‘in specie’ transfer, within 180 days of beneficial ownership passing to the surviving spouse – meaning the assets held in the Isa, such as shares or fund units, are being transferred directly rather than just cash
b. cash subscriptions, within 3 years of the date of death, or if later, 180 days of the completion of the administration of the estate