ISA APS confusion

TicketToRide25

Hello all,
I'm at the stage where I have the probate, but I'm a bit confused about ISA APS. Do I need to write to the half dozen banks and building societies the deceased held cash ISAs with and ask them to release the funds to the probate account I have set up? Once I've distributed the money to the beneficiary (his wife), does she need to set up a new APS ISA that allows transfers in (she was going to use NS&I before transferring at a later point) and specify his old ISAs so NS&I can confirm the amount she can move into the new ISA? She can then move in the money she has inherited.

I just don't want to fall foul of ISA transfer rules as in a normal transfer you wouldn't want to take the money out of the ISA and then put it back in to a new one - you'd need to use the ISA transfer rules to keep within the limit rules.

Any advice gratefully received.
Thanks

poseidon1

TicketToRide25 said:

Hello all,
I'm at the stage where I have the probate, but I'm a bit confused about ISA APS. Do I need to write to the half dozen banks and building societies the deceased held cash ISAs with and ask them to release the funds to the probate account I have set up? Once I've distributed the money to the beneficiary (his wife), does she need to set up a new APS ISA that allows transfers in (she was going to use NS&I before transferring at a later point) and specify his old ISAs so NS&I can confirm the amount she can move into the new ISA? She can then move in the money she has inherited.

I just don't want to fall foul of ISA transfer rules as in a normal transfer you wouldn't want to take the money out of the ISA and then put it back in to a new one - you'd need to use the ISA transfer rules to keep within the limit rules.

Any advice gratefully received.
Thanks

See below general guidance on the process -

https://techzone.aberdeenadviser.com/public/investment/Practical-guide-App-for-ISAAPS#:~:text=The process of claiming the,contributions from their own assets.

Clearly your plan to transfer the balances to a probate account, would be entirely counter productive, especially since ISAs are permitted to continue to accrue tax free income and gains whilst retained by the estate administrator for up to 3 years after death.

Keep_pedalling

What sort of income does the widow have? With the £1000 0% allowance and the starter savings rate cash ISAs are pointless if her income with interest is below £17,570 as none of the interest is taxable. Even if her income is quite a bit over that unless she is a higher rate tax payer the lower interest rates on ISAs mean they are still not worth it. 

TicketToRide25

But as the estate administrator (I'm the son btw) surely I need to collect the assets first before redistribution to the sole beneficiary, hence it needs to go through the probate account. (and these are quite large isas so probate was required)

TicketToRide25

Keep_pedalling, the numbers aren't insignificant. Pensions already push her above the 17k figure, and although savings rates might be comparable at the moment, I'm not going to suggest she undo years of tax efficient savings by taking them out of the tax wrapper now. 

poseidon1

TicketToRide25 said:

But as the estate administrator (I'm the son btw) surely I need to collect the assets first before redistribution to the sole beneficiary, hence it needs to go through the probate account. (and these are quite large isas so probate was required)

Not if you want your mother to benefit from the APS ISA wrapper.

The process is clear ( if you read the guidance). 

Your mother choses her APS provider, and they do the hard work to organise the transfer in from the various third party ISA providers. You in your executor capacity cannot open a new ISA, so your proposed action would be closure of perfectly serviceable ISAs  ( by transferring to executor current account) which as you point out represent years of tax efficient savings.

Unless you need any of the ISA funds to settle estate debts, then leave the ISAs where they are (accruing ongoing tax free interest) and assist your mother in setting up the APS provider who will receive the individual balances over time ( you have up to three years). 

Incidentally this does not  breach your general duty to call in the estate assets, you are merely assisting the primary beneficiary in an in specie transfer of a tax advantaged asset as specifically provided for by HMRC.

TicketToRide25

Sorry Poseidon, I'm really not getting this. If my mother set up a new ISA provider that caters for APS and they in turn reached out to the current ISA providers, how do the current ISA providers know that she is the beneficiary? She might have been cut out of the will entirely as far as the ISA providers know. Surely they can only release money to the estate administrator, ie the person listed in the probate documentation?

And the fact that the APS is independent of money inherited also points to this, ie If she didn't receive anything in the will, APS would still allow her to deposit her money from other sources up to the value of her husbands ISAs. So surely the money doesn't come direct from one ISA to the other?

And sorry, I probably should have specified earlier that these are all cash ISAs, so no in specie transfer required.

Keep_pedalling

My understanding is that a surviving spouse actually inherits an additional ISA allowance, and this is the case even if an ISA was left to someone else. Withdrawing the ISA to an executor account does not lose the additional allowance, it just needs to be used with 3 years of the death or 180 days of the estate being finalised if it is later.

https://www.barclays.co.uk/help/savings-and-investments/isas/inherit-allowance/

poseidon1

As you will see from the HMRC guidance to ISA managers below, they are instructed that because the APS is entirely separate and distinct from any entitlement the spouse may have to the deceased spouse estate, they are entitled to provide the relevant ISA valuations to the spouse -


https://www.gov.uk/guidance/manage-additional-permitted-subscriptions-into-an-isa#:~:text=Print this page-,Overview,must not have been separated

To quote from the above:

ISA regulations give you authority, on request to disclose the value of a deceased account holder’s ISA to their surviving spouse or civil partner.

Accordingly it is not necessary for ISAs managers to be contacted by executors in order for  APS transfer requests to be sanctioned going forward.

Of course it is  entirely your perogative to undertake extra estate  administration and incur  potentially unnecessary estate income tax by closing out the ISAs,  hold resulting balances in a taxable executor's deposit account, rather than delegating to a single APS provider to hopefully seamlessly handle  transferring  the various balances direct to a suitable ISA  at  your mother's request.

AP3

Just wanted to add something to clarify. The APS ISA allowance(s) and the funds within the existing ISAs are two completely different things.

The surviving spouse inherits an APS ISA allowance equal to the value of the sum of all ISAs held my the deceased spouse.

You can open an APS ISA with your chosen provider, then they "gather in" the APS allowance(s). You can then fund this with cash from any source.

It's entirely possible for the funds held in the existing ISAs to be inherited by someone other than the spouse. This doesn't change the fact that the spouse always inherits the APS allowance.