Late Father's ISA - 3 year Rule While Still In Administration + Reasons For Partial Share Disposal

LeoB1979

Hi All,

Hoping someone can help please

My Father died around a year ago, leaving a complex estate with me left everything by laws of intestacy. I have been stressed ever since and have not really had time to mourn him properly.

Through a Solicitor I now have Grant of Representation and as part of this the Tax submission has been made and paid aside from the Tax due on his house (where I live), which is split over 10 years (first payment paid with the submission).

The solicitor who handled Probate had told me that the large ISA (several £100k with around £20-30k in dividends each year) will retain its status until administration has been completed / or if not completed within 3 years then at that point (as the ISA will be closed by the operator).

As my father had a very complex estate (assets all over the place etc) administration is ongoing.

While I am dealing with other elements of the estate I would like to leave dealing with the ISA shares as a whole (I expect probably for another 6-9 months). However, I soon will have to pay:

1. HMRC the next installment on the house (approx £20k)
2. Family members around £100k that they lent me to help get the probate Tax settled

Additionally

• On top of this Ideally I would like to pay more to HMRC to cover off a bigger chunk of the house bill.
• I do have money in my own ISA I could use If worst came to worst

So, what I would really appreciate to know is:

1. If I go to the ISA team and get them to sell the shares will I be OK to pay HMRC and the family members the money loaned or does that cause problems with what will be left retaining Tax free status until the estate is fully tied up?
2. Would me electing to pay more tax to HMRC (to lower the following installments) make a difference to this scenario? 

I have asked my solicitor and although seemingly carrying all the credentials they have not been able to answer this categorically. They asked the ISA team who said they could sell whatever shares and the ISA would stay open but they couldn't advise on what tax implications there would be (I would have guessed they would say this so not sure why the solicitor asked them). Verbally the solicitor said it would be absolutely fine and then in writing it was they think it should probably be fine but they were unsure.

From what I can work out from regulation 34a of the 'The Individual Savings Account Regulations 1998' I think paying HMRC and the Loans back should be fine to do without impacting the remainder of shares being part of the estate... but I am not 100% sure, particularly as I live in the house and the people that loaned me the money are very close family.

If someone could give me their informed opinion that would be great please.

N.B.
I have been to tax accountants, STEP solicitors and several IFAs and it just hasn't worked out. Having said that if someone has a glowing recommendation I am not totally closed off to seeing another person.

RAS

Is this a stocks and shares ISA?

LeoB1979

Yes, a stocks and shares ISA that he managed. No funds, just FTSE 100 shares.

Keep_pedalling

I am not sure what tax implications you think there will be in closing your father’s ISA and transferring the proceeds to your self. The only tax it will be subject to is income tax and / or dividend tax any surplus you invest for yourself.

personally I would so this as soon as possible to pay off the personal loan and as much of the IHT bill as possible to reduce the amount of interest you will pay. This is a better option than using your ohm ISA wgich will take many years to build back up.

Linton

I agree with Keep_pedalling.  You cannot inherit your father's ISA keeping its tax free status so you will be left with a large amount of unsheltered wealth whatever your do.  I see no need to keep the shares as your investment needs will be different fo your father's, hence the apppropriate choice of investments will be different.  You may as well sell them all now within the ISA.

So get as many things cleared as soon as possible, particularly the loan and you could find life easier by simplifying the estate.

Keep_pedalling

LeoB1979 said:

Yes, a stocks and shares ISA that he managed. No funds, just FTSE 100 shares.

I would also add that holding individual shares is high risk investing and sticking to just FTSE 100 is in all eggs in one basket territory. Get them sold now and lock in any gains over the last year.

LeoB1979

Thank you very much for the responses.

I am aware the ISA will not retain its status once inherited and that individual share are high risk. I appreciate the advice but that is not what I am concerned about right now.

Currently any gains and dividends are tax free which is the way I would like to be sure it is until I have worked out other elements of the estate which are extremely stressful.

Once I transfer the rest out I will also need to figure out what to do with it and start tracking things to deal with the self-assessment element.

The real question I am asking is whether taking some money out to pay the IHT loans from family and the IHT tax installment will affect the remaining money retaining its ISA status within the estate.

Keep_pedalling

LeoB1979 said:

Thank you very much for the responses.

I am aware the ISA will not retain its status once inherited and that individual share are high risk. I appreciate the advice but that is not what I am concerned about right now.

Currently any gains and dividends are tax free which is the way I would like to be sure it is until I have worked out other elements of the estate which are extremely stressful.

Once I transfer the rest out I will also need to figure out what to do with it and start tracking things to deal with the self-assessment element.

The real question I am asking is whether taking some money out to pay the IHT loans from family and the IHT tax installment will affect the remaining money retaining its ISA status within the estate.

The ISA provider is almost certainly going to need you to close the account and withdraw all of it in one go. The fact that it will no longer be in a tax free wrapper is more than offset by the risk of seeing a large fall in value of those individual shares through market volatility, and the amount of interest you are having to pay HMRC. 

If you simply sell the shares and leave in the ISA you are going to earn little or no interest anyway. If also seem unfair the the family member has to wait any longer than necessary for repayment.  

LeoB1979

Keep_pedalling said:

LeoB1979 said:

Thank you very much for the responses.

I am aware the ISA will not retain its status once inherited and that individual share are high risk. I appreciate the advice but that is not what I am concerned about right now.

Currently any gains and dividends are tax free which is the way I would like to be sure it is until I have worked out other elements of the estate which are extremely stressful.

Once I transfer the rest out I will also need to figure out what to do with it and start tracking things to deal with the self-assessment element.

The real question I am asking is whether taking some money out to pay the IHT loans from family and the IHT tax installment will affect the remaining money retaining its ISA status within the estate.

The ISA provider is almost certainly going to need you to close the account and withdraw all of it in one go. The fact that it will no longer be in a tax free wrapper is more than offset by the risk of seeing a large fall in value of those individual shares through market volatility, and the amount of interest you are having to pay HMRC. 

If you simply sell the shares and leave in the ISA you are going to earn little or no interest anyway. If also seem unfair the the family member has to wait any longer than necessary for repayment.  

Thank you for your response.

As I said, the ISA provider has said they can sell a subset of shares.

Family who lent me the money are not rushing me to get it back and my intention is to deal with that as a priority.

My question is around the specifics of this 3 year rule and regulation 34a of the ISA regulations as I want to know how dividends and any potential growth would be treated after I pay the loan and tax.

Linton

LeoB1979 said:

Keep_pedalling said:

LeoB1979 said:

Thank you very much for the responses.

I am aware the ISA will not retain its status once inherited and that individual share are high risk. I appreciate the advice but that is not what I am concerned about right now.

Currently any gains and dividends are tax free which is the way I would like to be sure it is until I have worked out other elements of the estate which are extremely stressful.

Once I transfer the rest out I will also need to figure out what to do with it and start tracking things to deal with the self-assessment element.

The real question I am asking is whether taking some money out to pay the IHT loans from family and the IHT tax installment will affect the remaining money retaining its ISA status within the estate.

The ISA provider is almost certainly going to need you to close the account and withdraw all of it in one go. The fact that it will no longer be in a tax free wrapper is more than offset by the risk of seeing a large fall in value of those individual shares through market volatility, and the amount of interest you are having to pay HMRC. 

If you simply sell the shares and leave in the ISA you are going to earn little or no interest anyway. If also seem unfair the the family member has to wait any longer than necessary for repayment.  

Thank you for your response.

As I said, the ISA provider has said they can sell a subset of shares.

Family who lent me the money are not rushing me to get it back and my intention is to deal with that as a priority.

My question is around the specifics of this 3 year rule and regulation 34a of the ISA regulations as I want to know how dividends and any potential growth would be treated after I pay the loan and tax.

 According to https://www.gov.uk/individual-savings-accounts/if-you-die up to 3 years the shares will be in an ISA.  After the 3 years the ISA provider will close the ISA and sell the shares.

So ISTM there is no time period when the investments could give rise to a tax charge.

LeoB1979

Linton said:

LeoB1979 said:

Keep_pedalling said:

LeoB1979 said:

Thank you very much for the responses.

I am aware the ISA will not retain its status once inherited and that individual share are high risk. I appreciate the advice but that is not what I am concerned about right now.

Currently any gains and dividends are tax free which is the way I would like to be sure it is until I have worked out other elements of the estate which are extremely stressful.

Once I transfer the rest out I will also need to figure out what to do with it and start tracking things to deal with the self-assessment element.

The real question I am asking is whether taking some money out to pay the IHT loans from family and the IHT tax installment will affect the remaining money retaining its ISA status within the estate.

The ISA provider is almost certainly going to need you to close the account and withdraw all of it in one go. The fact that it will no longer be in a tax free wrapper is more than offset by the risk of seeing a large fall in value of those individual shares through market volatility, and the amount of interest you are having to pay HMRC. 

If you simply sell the shares and leave in the ISA you are going to earn little or no interest anyway. If also seem unfair the the family member has to wait any longer than necessary for repayment.  

Thank you for your response.

As I said, the ISA provider has said they can sell a subset of shares.

Family who lent me the money are not rushing me to get it back and my intention is to deal with that as a priority.

My question is around the specifics of this 3 year rule and regulation 34a of the ISA regulations as I want to know how dividends and any potential growth would be treated after I pay the loan and tax.

 According to [Link] up to 3 years the shares will be in an ISA.  After the 3 years the ISA provider will close the ISA and sell the shares.

So ISTM there is no time period when the investments could give rise to a tax charge.

Thank you for your response, much appreciated.

It would seem that way to me too. I just would love to here from someone who has experience with this.

As I say I just want to get the imminent bits sorted out and not be working out ongoing tax awareness and planning with the remainder of this ISA straight away. It is just another headache on the massive list of things I have to deal with.

My dad died in my arms, with me giving him CPR for ages and his life was really complicated with so much to tie up. I just want some bandwidth to mourn him properly but all these un-closed loops sit over my head and stress me no end. I really resent having to go straight into taxes and engaging with financial/legal professions that are not anything I am familiar with right after such a traumatic event.