Partner's ISA inheritance opportunity - lesser-known tax advantage can increase your allowance by substantial amounts
In the event of a spouse's or civil partner's passing, surviving partners may be eligible to claim the ISA Additional Permitted Subscription (APS), allowing them to invest an amount equal to the value of the deceased's ISA on the date of death (or at probate completion if higher) without using their usual annual ISA allowance[1][2][3].
The process of claiming the APS involves several steps:
- Applying to the ISA provider(s) of your deceased spouse or civil partner to register the APS.
- Providing necessary documentation, such as proof of marriage or civil partnership and the grant of probate.
- Completing the application within HMRC’s specified timeline to avoid losing the allowance[1][3].
The APS can typically be used across different types of ISAs and even with different providers, depending on your circumstances[3]. It's crucial to check whether the new or existing platform fits your needs, especially around fees and service.
Upon inheriting an ISA, it's advisable to review the portfolio as soon as possible. Around half of people are still holding exactly the same portfolio as their spouse had[4]. Jude Dawute, managing director at wealth manager Benjamin House, emphasises the importance of understanding the inherited investments and making any necessary adjustments[5].
Sarah Coles, head of personal finance at Hargreaves Lansdown, highlights the value of the APS for married couples and civil partners. However, she also stresses the importance of approaching any changes to an inherited ISA with care[6]. Making changes to an inherited ISA can have unforeseen and damaging consequences, such as selling investments designed to produce income and continuing to draw the same income, which could eat into savings faster than expected.
It's often sensible not to make any sudden changes after a bereavement until one has had time to come to terms with the new circumstances. The key consideration is whether the inherited holdings still align with the investor's goals. If the inherited investments were designed for long-term growth but the investor needs short-term income, switching may be appropriate.
Coles also emphasises the importance of arming the surviving partner with all the knowledge and support they need, which may involve working together on investments, talking about how they work and what they are designed to do, or seeking financial advice[7].
The number of ISAs inherited on the Hargreaves Lansdown platform has increased by 33% last year and 68% in two years[8]. Around one in seven (15%) make their first trade within two weeks of inheriting[9].
By claiming the ISA Additional Permitted Subscription, surviving partners can reinvest the inherited ISA value tax-free, effectively preserving the tax benefits of the deceased's ISA investment[1][3].
- In the realm of personal finance, it's essential for surviving partners to acknowledge they might be eligible to utilize the ISA Additional Permitted Subscription (APS), especially when their spouse or civil partner passes away.
- Once a partner inherits an ISA, it's advisable to evaluate the portfolio promptly, as around half of people continue to hold the exact same portfolio as their spouse had.
- After inheriting an ISA, it's wise to be cautious in making changes, as doing so without understanding the investments could result in unforeseen consequences such as selling income-producing investments and prematurely depleting savings.
