Transferable ISA Allowances – The New Rules

With effect from 6 April 2015, where an individual dies on or after 3 December 2014 leaving an ISA, their ISA allowance will be transferrable to the surviving spouse or civil partner provided that they were living together at the date of the deceased’s death. They will be treated as living together unless they are separated under a court order, by deed of separation or in fact, in circumstances in which the separation is likely to be permanent. This will apply in addition to the surviving spouse or civil partner’s normal ISA subscription limit.

Inheriting a Stocks and Shares ISA in specie

In order for a surviving spouse or civil partner to subscribe to an additional Stocks and Shares ISA allowance in specie (without the ISA having to be sold and the subscription made in cash), the Stocks and Shares ISA will need to be specifically “inherited” by the survivor, which includes inheritance under a will trust or by deed of variation. Although it has not yet been made explicit by Government guidance, it is assumed that inheritance under the intestacy rules will also qualify the survivor to subscribe for an additional allowance. It is important to note that the Stocks and Shares ISA and allowance can only be inherited if the additional allowance is subscribed for with the same account manager as the deceased. Nevertheless, a surviving spouse or civil partner can subscribe cash up to the value of a Stocks and Shares ISA held by the deceased as an alternative to subscribing the non-cash assets held in the ISA in specie (for example if the Stocks and Shares ISA is not inherited).

Time Limits

The Individual Savings Account (Amendment No.2) Regulations 2015 stipulates that the surviving spouse or civil partner must apply to transfer the deceased’s allowance within a ‘permitted period’, the length of which differs depending on whether a Cash ISA or a Stocks and Shares ISA is involved.

In the case of a Stocks and Shares ISA, the application must be made within the period of 180 days from the date that the Stocks and Shares ISA is distributed by the personal representatives to the surviving spouse or civil partner. Where the deceased held a Cash ISA, the subscription must be made within the later of 3 years from the date of death or 180 days after the administration of the estate has been completed.

It should be noted that where an individual has died between 3 December 2014 and 5 April 2015 the distribution of the Stocks and Shares ISA from the estate is treated as occurring on either 6 April 2015 or on the actual date of distribution, if later. In the case of a Cash ISA and for the purposes of calculating the permitted period, the deceased is treated as dying on 6 April 2015, if he dies between 3 December 2014 and 5 April 2015.

Additional Allowance

The amount of the subscription that is available to the surviving spouse or civil partner where they subscribe cash is either the value of a single account manager at the date of death or, where the deceased held more than one account with the single account manager, the combined value of those accounts at the date of the deceased’s death.

However, in the case of a Stocks and Shares ISA, where a survivor applies to adopt the additional ISA allowance in specie, it is the value of the Stocks and Shares ISA at the date that the survivor subscribes to the additional allowance that counts towards the ISA limit. Therefore if the value of the Stocks and Shares ISA has risen since the date of death, the surviving spouse or civil partner will be able to subscribe to all the assets provided the deceased also had a Cash ISA with the same manager (or cash within the Stocks and Shares ISA itself), the value of which would account for the difference in terms of the additional allowance available. On the other hand, if the Stocks and Shares ISA has fallen in value since the date of death, the surviving spouse or civil partner can opt to subscribe the balance in cash.

In view of the above developments, individuals should consider including a specific legacy of their Stocks and Shares ISA to their spouse or civil partner (if applicable) in their wills to ensure that the transferrable allowance is available to the survivor in specie (without the ISA having to be sold and the subscription made in cash). A specific legacy will also serve as a useful reminder when administration of the estate is underway of the need to actively apply for the additional allowance within the statutory time frames.

To discuss the new changes and for advice on LPAs, please contact Nick Giles – Managing Partner, Ania Boyce – Accociate or a member of the Edwin Coe Private Client team.

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