Tax efficient inheritance

mattsaze

Newly_retired said:

When my husband died earlier this year, his bank were happy for me to open a new account with them in my name and to transfer money from his accounts into it. Within a short time, I also opened an ISA with them using the special rules which allow an ISA to be transferred without impinging on one’s personal annual ISA allowance of £20,000.. It does not matter if the holder will not be the ultimate beneficiary of the ISA. As it happens, I will, but this is not always the case. So I will take this ISA as part of my inheritance, just as another beneficiary will take property as part of hers.
Even though we have Probate, no distribution has taken place just yet, as some assets are still in the process of being sold. Until then, the amount is uncertain.
All this is clearly documented, just in case I die before distribution.
I do know that an estate has no personal allowance for income tax ( usually £1000 in savings interest for many people) so all interest is fully taxable. But as I understand it, the interest on the ISA is not taxable, even for an estate.

Thanks for the info and I’m sorry for your recent loss. I wasn’t aware of those ISA rules, that’s really helpful to know. From what I’ve read the first £500 of any interest earned is tax free, anything above that is taxed at 20%

Newly_retired

I stand corrected on the last point. Thank you.
But the interest from the ISA will not be counted within that first £500, nor anything above that. It is always tax free.
Once the administration of the estate is complete, I shall probably move mine elsewhere, but until then, it is clearly separate from my own ISAs. 
The allowance is only available to a spouse ( or partner ?)  by the way, not any other relative. Not all banks offer this. Those that do a specific inheritance ISA do not offer the best rates, but mine with Lloyds is not a special one, and is easily moveable.

Keep_pedalling

Newly_retired said:

I stand corrected on the last point. Thank you.
But the interest from the ISA will not be counted within that first £500, nor anything above that. It is always tax free.
Once the administration of the estate is complete, I shall probably move mine elsewhere, but until then, it is clearly separate from my own ISAs. 
The allowance is only available to a spouse ( or partner ?)  by the way, not any other relative. Not all banks offer this. Those that do a specific inheritance ISA do not offer the best rates, but mine with Lloyds is not a special one, and is easily moveable.

The allowance is only available to a spouse or civil partner, but they don’t need to use one of those inheritance ISA. If for instance your spouse had £100k in an ISA, once that is released you have effectively an additional £100k allowance that you can put into any ISA you like. We both have significant S&Ss ISAs so once one of us dies the survivor will not be forced to open a cash ISA.