APS Cash ISA accounts

philthewalker

My wife has been diagnosed with a terminal disease. We each have a number of Cash ISA accounts in our individual names. A number of ISA providers, but not all, offer APS ISA accounts, under the new ISA Regulations, which allow spouses of deceased ISA holders to maintain legacy ISA accounts under the tax-free umbrella that ISAs offer. Most of these accounts are easy-access with a relatively low rate of return. All of our Cash ISA accounts are in long-term (5 year) fixed-rate accounts with the best rates available at the time of opening. I understand that it is possible to maintain the original Cash ISA for up to three years after death. Is there any reason why I cannot just open a APS Cash ISA, to take the funds from my wife's ISAs, and then, almost immediately, transfer those funds into another higher-rate earning fixed rate in my own name. If that is possible then I don't really see why ISAs cannot simply be re-designated to the spouse on the death of a partner but that's another question.
In addition all of our fixed-rate accounts carry an exit penalty of several month's worth of interest. Do providers waive these penalties if the ISA is transferred to a new APS ISA provider?

eskbanker

philthewalker wrote: »

Is there any reason why I cannot just open a APS Cash ISA, to take the funds from my wife's ISAs, and then, almost immediately, transfer those funds into another higher-rate earning fixed rate in my own name.

According to https://www.gov.uk/guidance/manage-additional-permitted-subscriptions-into-an-isa:

Once an additional permitted subscription has been made, a surviving spouse can transfer their savings under the normal ISA rules, with the additional permitted subscriptions being treated as previous years’ subscriptions

philthewalker wrote: »

In addition all of our fixed-rate accounts carry an exit penalty of several month's worth of interest. Do providers waive these penalties if the ISA is transferred to a new APS ISA provider?

Assuming you're referring to your wife's ISAs, they're not really being transferred as such, it's just that you'd be receiving and using an equivalent allowance, but on the death of a subscriber I don't think it would be practical or reasonable to impose any early redemption penalties for the accounts of the deceased, but can't readily find this spelled out as such in the rules. Even though they'd probably be overridden by the overall ISA rules anyway, perhaps the Ts & Cs of the products themselves clarify?

Paul_DNAP

It may vary with different providers, but here's the Skipton 5yr fixed ISA T&C about death, no mention of the penalty when talking about interest due:

2.6 In the event of death, interest due up to the date of death will be paid into the account. The account will transfer to a new easy access Cash ISA, which can be managed by branch or post, from the date of death and will be dealt with in accordance with HMRC regulations and guidance. If this happens we'll advise you of the new rate and terms of the account.

The Nationwide are clear in their T&C for fixed term ISA - no penalty

13. The early access charge will not apply if the account is closed early due to the death of the account holder or if the account is closed during the 14 day cancellation period described in the 'Closing your account' section of the Cash ISA General Terms and Conditions.

badger09

I agree with what others have posted, but can offer one possible reason

"I don't really see why ISAs cannot simply be re-designated to the spouse on the death of a partner but that's another question"

Not everyone leaves their estate, including ISA, to their spouse/civil partner. For example mine will be left to my son & my husband's will be left to his son. So a simple re-designation of the ISA is impossible.

Best wishes to your wife.

philthewalker

Thanks badger09

Whilst you can leave your money to whomever you wish, an ISA together with its tax-free status, can only be passed on to a spouse under the APS rules. If, for example, you have £30,000 in an ISA account this can only be passed to a spouse in its entirety under the APS rules. To pass it on to anyone else it would have to be cashed in and lose its tax-free status. The beneficiary could use £20000 as their current year's ISA subscription (if they haven't already subscribed in that year) and would have to find another home for the remaining £10,000.

bowlhead99

philthewalker wrote: »

Thanks badger09

Whilst you can leave your money to whomever you wish, an ISA together with its tax-free status, can only be passed on to a spouse under the APS rules. If, for example, you have £30,000 in an ISA account this can only be passed to a spouse in its entirety under the APS rules. To pass it on to anyone else it would have to be cashed in and lose its tax-free status. The beneficiary could use £20000 as their current year's ISA subscription (if they haven't already subscribed in that year) and would have to find another home for the remaining £10,000.

I wonder if you might be missing the point of how APSs work, or at least are supposed to work.


Isas always stop being ISAs at date of death because the Individual whose Individual Savings Account it was, is no longer around. The point of an 'additional permitted subscription' is that the spouse doesn't need to receive the cash or other assets which used to be in the ISA, to be able to make additional special one-off subscriptions and get themselves back up to the same total level of ISAs that they used to have between themself and spouse.

So for example if badger09 had £30k of ISAs while her husband had £30k of ISAs, their spousal household has £60k protected from tax. When badger09 meets her untimely doom this weekend , her Will says their son is going to get a £30k payday, and you're right that the son will only be able to stuff £20k of that into an ISA wrapper this tax year - he might not even be able to put any of it into an ISA wrapper this tax year if he's already used his allowance for 2017/18.

However, regardless of the fact that the cash from badger09's ISA (or the investments from badger09's investment ISA) is going to go to her son, her husband will inherit a useful 'ISA wrapper' from her, in the form of an allowance for additional permitted subscriptions - even if he doesn't receive any actual cash or investments because they were removed from the wrapper when it expired on her death and the assets were given to her son.

So effectively her son will get £30k of cash or assets which he can put into his own accounts (e.g. into an ISA within his own remaining limits for the year, or into a pension within that remaining limit, or keep unwrapped, or just spend, etc etc). But the husband will be able to make extra "A.P.S." contributions of £30k over and above his normal remaining 2017/18 ISA allowance, into an account with the dead-spouse's ISA provider. This means that if he's got sufficient money available, he'll be able to fund an extra £30k-worth of ISA and get straight back up to the £60k level of ISA-wrapped assets that he-and-spouse had earlier, when he was part of a marriage that had £60k in ISAs between them.

It's not necessary for the husband to be the beneficiary of £30k of ISA inheritance from his wife (or vice versa) ; the surviving spouse will get the APS allowance and can simply use their own assets (existing cash or investments, or perhaps selling the family home and downsizing, etc etc) to stuff his ISAs back up to the aggregate amount that he and spouse had between them. That's the purpose of the arrangement.

If your succession planning / inheritance tax planning is relying on you giving assets to your kids or friends or whomever, when the first of you dies, that doesn't mean you won't still get those additional permitted subscriptions to help preserve your level of tax free assets which might have been providing the two of you a nice tax free annual income.


I think the difference between how it works, and how you seem to be explaining it, is that you're saying that " an ISA together with its tax-free status, can only be passed on to a spouse under the APS rules"... whereas, the correct position is that a tax free allowance of whatever the ISA was worth at point of death is granted to the spouse so that if they have sufficient spare money, they can immediately get back to the amount of total ISAs that they and their dead spouse had between them before the dead spouse's ISA was immediately dissolved. This does *not* mean the spouse has to inherit the ISA contents - they simply inherit the ability to wrap stuff up in an ISA up to the total value at point of death. The actual contents can go to someone else, without the spouse losing the power to keep a large amount of assets preserved from tax.


So instead of

"an ISA together with its tax-free status, can only be passed on to a spouse under the APS rules"


it's really:


"A special one-off ISA allowance equivalent to the value of a deceased person's ISA at point of death, can only be passed onto as spouse under the APS rules. The contents of the ISA can be passed on to whomever the deceased person wished it to go to."

philthewalker wrote: »

Do providers waive these penalties if the ISA is transferred to a new APS ISA provider?

Some providers will waive whatever penalty there was for early closure, if the owner dies. Others might do whatever they normally do when you want to break a fixed term ISA while still alive, which is charge the standard penalty to claw back some of whatever interest would have otherwise have been applied to the account, as punishment for not keeping to the original agreed term.

When you're offered a better rate for a long term fix, that's because the bank expects to be free and clear to use the money within their banking and lending business for at least that amount of time. If you want the money back early to spend for yourself (if alive) or to give to your heirs (if you died), then a penalty is fair and reasonable because the contract is broken, and while some banks are more compassionate than others, they're not charities. But as you can see from the quotes above, some will waive it.

You may of course find that even if they do charge a penalty, you get a better overall rate of interest by signing up to a longer fix and paying the penalty than by only using a series of shorter term fixes.

badger09

bowlhead99 wrote: »

I wonder if you might be missing the point of how APSs work, or at least are supposed to work.
..........................

Thank you bowlhead99. You got there well before me.

I do understand how the APS works but was fairly sure from the initial post, that OP didn't.

bowlhead99 wrote: »

When badger09 meets her untimely doom this weekend ,

:eek::eek::eek::eek:

What have I done to deserve that?

bowlhead99 wrote: »

[STRIKE]:mad:When badger09 meets her untimely doom this weekend ,:mad:[/STRIKE] her Will says their son is going to get a £30k payday, and you're right that the son will only be able to stuff £20k of that into an ISA wrapper this tax year - he might not even be able to put any of it into an ISA wrapper this tax year if he's already used his allowance for 2017/18.

However, regardless of the fact that the cash from badger09's ISA (or the investments from badger09's investment ISA) is going to go to her son, her husband will inherit a useful 'ISA wrapper' from her, in the form of an allowance for additional permitted subscriptions - even if he doesn't receive any actual cash or investments because they were removed from the wrapper when it expired on her death and the assets were given to her son.

So effectively her son will get £30k of cash or assets which he can put into his own accounts (e.g. into an ISA within his own remaining limits for the year, or into a pension within that remaining limit, or keep unwrapped, or just spend, etc etc). But the husband will be able to make extra "A.P.S." contributions of £30k over and above his normal remaining 2017/18 ISA allowance, into an account with the dead-spouse's ISA provider. This means that if he's got sufficient money available, he'll be able to fund an extra £30k-worth of ISA and get straight back up to the £60k level of ISA-wrapped assets that he-and-spouse had earlier, when he was part of a marriage that had £60k in ISAs between them.

Son couldn't put anything in an ISA as he's resident abroad, and husband wouldn't use APS as he's currently withdrawing from his ISA

so badger09 had better survive a while longer:D

AirlieBird

bowlhead99 wrote: »

Isas always stop being ISAs at date of death because the Individual whose Individual Savings Account it was, is no longer around.

bowlhead99 wrote: »

I think the difference between how it works, and how you seem to be explaining it, is that you're saying that " an ISA together with its tax-free status, can only be passed on to a spouse under the APS rules"... whereas, the correct position is that a tax free allowance of whatever the ISA was worth at point of death is granted to the spouse so that if they have sufficient spare money, they can immediately get back to the amount of total ISAs that they and their dead spouse had between them before the dead spouse's ISA was immediately dissolved. This does *not* mean the spouse has to inherit the ISA contents - they simply inherit the ability to wrap stuff up in an ISA up to the total value at point of death. The actual contents can go to someone else, without the spouse losing the power to keep a large amount of assets preserved from tax.


So instead of

"an ISA together with its tax-free status, can only be passed on to a spouse under the APS rules"


it's really:


"A special one-off ISA allowance equivalent to the value of a deceased person's ISA at point of death, can only be passed onto as spouse under the APS rules. The contents of the ISA can be passed on to whomever the deceased person wished it to go to."

An ISA does not stop being an ISA immediately on death, it continues to benefit from the ISA wrapper until the earlier of completion of the administration of the deceased's estate, the ISA is closed or 3 years from the date of death. The value that can be passed to the spouse or civil partner is the higher of the value on the date of death or the value on the date it is closed on the above condition.