APS ISAs - Any Point?

bigalxyz

My dad died recently and left everything to my mum in his will. I'm the executor of his will, and I'm in the middle of sorting out his bank accounts.

He had two ISAs open with Kent Reliance, total balance including interest of about £41k.

Kent Reliance said that some banks offer "APS" ISAs which means my mum could transfer this sum to one of those and keep the tax free benefits. However, I'm wondering if there's any point - I get the impression that not many providers offer this flavour of ISA (Kent Reliance said they don't), and that perhaps the interest rates on offer aren't particularly competitive - which might outweigh the tax benefit, which is likely to be small I suspect.

Does anyone have any thoughts/guidance here please? I'm struggling to know what to do.

Thank you.

Keep_pedalling

You mother can put the inherited allowance in any ISA she wants. 

https://moneyfactscompare.co.uk/isa/guides/the-rules-on-inheriting-isas/

etienneg

Keep_pedalling said:

You mother can put the inherited allowance in any ISA she wants. 

https://moneyfactscompare.co.uk/isa/guides/the-rules-on-inheriting-isas/

This may very well be true, IN LAW. However, there is often a big difference between what you can do BY LAW and what ISA providers allow. Just because the law allows something doesn't mean that ALL ISA providers must allow it.

For example, the law now allows you to contribute to more than one ISA in a tax year. But some ISA providers only allow you to contribute to one ISA (with them) in a tax year. They don't, for example, allow you to put part of your £20,000 allowance in a fixed rate and part in an easy access ISA. Similarly, the law allows you to transfer part of an ISA held with another provider. But some ISA providers do not allow partial transfers, only full transfers. And so on.

In other words, what you can do IN PRACTICE may be a subset of what you can do IN LAW. It all depends on the ISA provider.

So, to the OP's question. IN PRACTICE, you can only use an additional permitted allowance where the ISA provider allows this, which is probably when they offer an Additional Permitted Subscription (APS) ISA - at a lower interest rate! I've never dealt with this situation and I don't know much about it. For example, will another ISA provider allow you to transfer in to a normal ISA from an APS ISA? If not, then the money is permanently stuck in lower than usual interest accounts.

This is the crux of the OP's (very reasonable) question, and I (as well as the OP) would like to hear from anyone with experience of this. Names of those ISA providers who do allow APS transfers would be good. Otherwise, individual ISA providers would need to be questioned.

goodread

My Dad had two ISAs that we put into a Legacy Cash ISA for my Mum with the Skipton Building Society - that's their version of the APS ISA. We looked at Virgin Money and Santander as well, but the Skipton's interest rate was the best at the time. 

Once it was opened the account just became another cash ISA in Mum's name. It didn't count towards her personal 20k ISA allowance - APS means an additional subscription, after all. We were able to transfer it to a different cash ISA at another provider with a better interest rate. 

So really, the interest rate at the Skipton didn't matter in the end. As has been said, it kept the money in a tax free account, and was well worth doing. 

EdSwippet

etienneg said:

This is the crux of the OP's (very reasonable) question, and I (as well as the OP) would like to hear from anyone with experience of this. Names of those ISA providers who do allow APS transfers would be good. Otherwise, individual ISA providers would need to be questioned.

Handled recently on behalf of my widowed mother. Both Nationwide and Lloyds correctly handled APS ("inheritance") ISAs. In Nationwide's case, my mother did not already have an ISA with them, so they opened one with an allowance set equal to my late father's ISA balance, and then transferred his Nationwide ISA money across to it. In Lloyds case, my mother already had an ISA there, and Lloyds simply merged my late father's Lloyds ISA balance into that one.

All entirely seamless and straightforward, just some minor form-filling, in both cases well handled by the banks' bereavement units. And well worth doing to keep the ISA allowance intact. Both these ISAs are entirely vanilla, and can be transferred at will. In practice, there is nothing special or segregated about an APS ISA; it's nothing more than an ordinary ISA with an extra initial contribution allowance.

I handled it within the banks where my late father's ISAs were primarily to make the whole process smoother. I could have applied for APS ISAs at entirely different banks, but that would have involved paperwork and coordination between banks. Better to split the process; get the money into an ISA first, then find the best rate and transfer afterwards, and at leisure, through regular ISA transfer mechanisms.

Opening an APS ISA isn't quite the same as opening any old ISA. There is a bit of special extra paperwork; the bank will supply that on request. Where a given ISA provider doesn't offer APS ISAs, you'll have to go to one that does, and then have them contact the other to arrange the allowance transfer. A bit more of a runaround than doing it all through the same bank, but not dreadful. And well worth it to retain the higher ISA allowance.

Of note: a bereaved spouse can inherit the ISA allowance without necessarily inheriting the ISA money itself. They would of course then need to be able to fund it from their own existing money, but it can still be useful nevertheless.

dunstonh

. However, I'm wondering if there's any point - I get the impression that not many providers offer this flavour of ISA (Kent Reliance said they don't), and that perhaps the interest rates on offer aren't particularly competitive - which might outweigh the tax benefit, which is likely to be small I suspect.

Never had an issue with any provider not accepting the APS.  It is very useful and beneficial.

etienneg

Well, I've certainly learned something useful here, thanks to the last three respondents, so thank you all for your contributions. (It's also good news!) I hope the OP has also been helped and encouraged to use the APS route.

Newly_retired

I can confirm that Lloyds easily transferred my late husband's ISA to a newly opened APS ISa with them. I then transferred it out and into an existing ISA  of mine, for a higher interest rate.
A bonus for me was that at least some of the estate was earning interest for me, whilst the rest of the money took time to sort out and distribute.

jimjames

etienneg said:

Keep_pedalling said:

You mother can put the inherited allowance in any ISA she wants. 

https://moneyfactscompare.co.uk/isa/guides/the-rules-on-inheriting-isas/

For example, the law now allows you to contribute to more than one ISA in a tax year. But some ISA providers only allow you to contribute to one ISA (with them) in a tax year. They don't, for example, allow you to put part of your £20,000 allowance in a fixed rate and part in an easy access ISA. 

That's not quite correct. The law allows you to open more than 1 ISA of a type per year, it doesn't mandate providers to allow multiples of ISA with them. Nothing can stop you opening another ISA with a different provider if you want easy access account separate.

bigalxyz

Thanks everyone for your comments (I'm the OP). I'm still a bit confused though.

Kent Reliance said they don't have any APS products so they were just going to release the money to me (as the executor). The woman I spoke to on the phone said that I could use that money to open up new ISAs with a suitable provider (ie one that accepts APS stuff) and that the new provider could contact Kent Reliance to verify that the money came from my dead father's ISAs blah blah...it's all very clunky.

Best paying cash ISA at the moment seems to be Moneybox. Do I just phone Moneybox up and ask them if they can do all this stuff? And if not, do I just work my way down the list of ISA providers (in decreasing order of interest rate) until I find someone that bites? It sounds like a right old faff!

fuzzzzy

I doubt any provider will have an APS ISA paying the equivalent of their top rate as it is a niche product.

Get your mum to open a legacy cash ISA with Skipton, like goodread did in the earlier post, (or any other provider who does APS ISAs). The Skipton one currently pays 3.3%. They will ask her to fill in a form saying where the APS allowance is coming from. They will contact Kent Reliance to confirm what her allowance is and then give her permission to pay that amount into the legacy cash ISA. Once all the money has been paid in begin a transfer out to a higher paying ISA.