ISA's - Is tax payable after death?

L77

Does anyone know if tax is payable on an ISA after the account holder dies?

If it is what are the rules in relation to this? In particular;

1. Is tax payable from the date the person dies?
2. Will HMRC take into account the length of time that an executor needs to obtain probate to get hold of the estate monies before paying any tax owed?
3. Does the executor of the will need to complete and submit any forms to the tax office together with the payment due.

What happens if the beneficiary of the Will wants the money from the deceased's ISA to be transferred into their own ISA and they are the wife/partner of the deceased?

Does the total of the combined ISA's have to be below the tax year limit of £15,0000 for it to remain tax free or would tax still be payable.

I have tried to find the answer elsewhere online but can't seem to find a definitive answer and therefore thought this forum may be able to help.

colsten

A spouse can inherit an ISA in full. Therefore no tax becomes due. Note there is no overall limit of £15,000 - - what you are referring to is the annual allowance. You can have millions in an ISA.

If there is no spouse, the ISA ends on the day of death and becomes part of the estate.

The full ISA Rules are here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/459781/isa-guidance-notes.pdf

noh

colsten wrote: »

A spouse can inherit an ISA in full. Therefore no tax becomes due. Note there is no overall limit of £15,000 - - what you are referring to is the annual allowance. You can have millions in an ISA.

If there is no spouse, the ISA ends on the day of death and becomes part of the estate.

The full ISA Rules are here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/459781/isa-guidance-notes.pdf

It doesn't work like that.
On the death of the ISA holder the ISA ends and its contents become part of the estate and subject to tax on income and dividends.
If there is a spouse they become entitled to an Addittional Permitted Subscription (APS) which is equal to the value of the deceased's ISA at death. This means that the spouse can contribute that much extra to their own ISA.
Note that the spouse only automatically inherits an extra allowance not the contents of the ISA which could have been willed to someone else.

More info on how it works from Nationwide:-

http://www.nationwide.co.uk/support/support-articles/manage-your-account/isa-inheritance/isa-inheritance-about

http://www.nationwide.co.uk/~/media/MainSite/documents/support/managing-your-accounts/P2929%20Apr%2015%20SIGNED%20OFF%20v_2.pdf

L77

Thanks for your reply. I have read about APS but I thought you would only need to apply for this if spouse has already reached the annual tax free allowance threshold for the tax year? Is this correct.

Which if that is the case no tax is payable to hmrc. I am therefore confused as to why the deceased's ISa provider is saying that tax is due from date of death and where they got the figure from as to how much needs to be paid to hmrc? They have sent a form to complete to apply for APS but I dont believe it is necessary in the circumstances???

noh

As I explained in my post above the ISA wrapper finishes on the date of death. Any interest or dividend earned on those assets from that date is then subject to tax and the provider is obliged to deduct any tax due before paying the proceeds to the estate.

If the surviving spouse wants to use the APS then it has to be applied for.
Obviously if the sums involved are relatively small then the APS is not of much use but the APS lasts 3 years from date of death so if in future years there may be more funds available it is worth applying for.

L77

Thanks for that. Sorry this is something I have never come across before.