Not clear about inherited ISA allowances and APS - seems unusually generous.

[Deleted User]

My father passed away with three cash ISAs and two shares ISAs. If I'm reading the letters from the banks correctly, my mother can:

Add the total value of the cash ISAs to her allowance. So suppose the total of my dad's cash ISAs was £86k, then she'd be entitled to put £106k into her own ISA this tax year, and then back to £20k in subsequent years?

Does this same apply to stocks and shares ISAs? Can she put the value of those into her own stocks and shares ISA?

It says the deceased ISAs can continue for a maximum of three years, so as well as using the above allowances, the smart thing to do appears to be simply to leave these ISAs earning interest tax free for the next three years, and only after three years transferring them to my mothers account?

In summary then, let's say dad's cash ISAs are currently worth £86k, and shares ISAs are worth £50k. We leave these as they are for three years, and right now any non-ISA money my mother inherits can go into ISAs in her name, up to £86k for cash and £50k for shares?

JGB1955

Maybe I'm just being a bit thick but, why would leaving them in your Dad's name for 3 years be any better than transferring them to your mother now?

[Deleted User]

JGB1955 said:

Maybe I'm just being a bit thick but, why would leaving them in your Dad's name for 3 years be any better than transferring them to your mother now?

Because if they get transferred to my mother, then all she can use is the inherited ISA allowance. If they are left as is, then she can use the inherited allowance herself AND at the same time my father's ISAs continue to grow tax free.

plantation_2

[Deleted User] said:

JGB1955 said:

Maybe I'm just being a bit thick but, why would leaving them in your Dad's name for 3 years be any better than transferring them to your mother now?

Because if they get transferred to my mother, then all she can use is the inherited ISA allowance. If they are left as is, then she can use the inherited allowance herself AND at the same time my father's ISAs continue to grow tax free.

I think you are misunderstanding. The APS rules mean your father's ISAs can get transferred into your mum's name without affecting her ability to make a normal ISA contribution as well. As JGB1955 said there is no advantage to waiting the three years (it is just giving you time to sort stuff out) as your dad's old ISA that has moved to your mum continues to grow tax free just like any other ISA

noh

You cant do both.
If you use the APS from your fathers ISAs to add extra funds to your mothers ISA from outside your fathers ISA then at that point your fathers ISAs cease to be ISAs.
You have the choice to transfer the ISAs from your fathers account to your mothers account with the same provider or fund your mothers ISA from a different source but not both.

pjs493

I think you’re misunderstanding the rules. Your mother’s ISA allowance will increase by the value of your father’s ISAs to allow her to inherit your father’s ISAs and transfer the funds into her name. The APS allowance is there to ensure ISAs held by one spouse can be transferred to the surviving spouse without incurring any tax on the savings. The three year rule is just to give the executor, banks, etc the time they need to ensure the transfer is completed without tax implications on the savings. 

[Deleted User]

"You cant do both."

Thank you. This is what I expected, but the information I got from Nationwide did not say this at all, it had two completely separate paragraphs. One paragraph said the ISA allowance (not the "cash in my father's ISA") can be transferred to my mother, the other saying my father's ISAs can be kept open for 3 years.

Just another example of bad writing by the banks. I work in technical writing, and we're always very careful to consider the inferences the reader might make.

Newly_retired

It may be worth noting that the spouse can inherit this ISA allowance even if in the will they do not actually inherit all the amount of money in the ISAs.