Inherited ISA and tax free allowance

Katheros1410

Hi, 

I have inherited a couple of ISAs following my mum passing away last August. Now have probate so writing to the providers to close the accounts. I understand that at the moment they are classed as ‘continuing ISAs’ until they are closed/cashed in i.e. the estate is settled. 

Can anyone advise as to the tax free status of the ISA in this situation. Will I be liable for tax on the interest earned in the ISA for the period between inheriting them and closing the account? 

Thanks in advance. 

Keep_pedalling

Provided that probate did not take longer than 3 years there will be no tax liability. 

tetrarch

AIUI you can keep the accounts open with their Income and Capital protections for 3 years and a day

https://www.charles-stanley.co.uk/insights/commentary/what-happens-your-isa-when-you-die

"The ISA becomes a ‘continuing account of a deceased investor’, or a ‘continuing account’ for short, for up to three years while the administration of the estate is completed. No money can be paid into it from this point, but it will continue to benefit from the tax advantages of an ISA, so any growth, income or interest will remain tax-free. 

Active management of the investments already held within the account may continue. However, it is not possible to request a transfer to an alternative ISA manager; nor is it possible to change a Stocks & Shares ISA into a Cash ISA or vice versa with the same ISA manager"

This could mean that beneficiaries could manage their tax affairs and gain maybe 3 years of additional ISA allowances in which to transfer the residual ISA contents

I'm not 100% sure on this, but this does look correct

Regards

Tet

poseidon1

If I was in this position and getting a decent rate of tax free interest, I would drag out the permitted 3 year holding period to maximise returns, particularly  if I were already using  up my own  annual isa allowance from personal non inherited resources. It's a potentially generous facility in these circumstances.

Of course if the interest rate is terrible, then shut down ( tax free ) and move on.

Katheros1410

Thanks everyone for replying. So it looks like the rules for beneficiaries (who aren’t spouses) is that you can keep the tax free wrapper until you either cash in or settle the estate subject to the 3rd one day rule. They are fixed rate ISAs with a really good interest rate so will not be in a hurry to cash in if that is the case. 

Katheros1410

Katheros1410 said:

Thanks everyone for replying. So it looks like the rules for beneficiaries (who aren’t spouses) is that you can keep the tax free wrapper until you either cash in or settle the estate subject to the 3rd one day rule. They are fixed rate ISAs with a really good interest rate so will not be in a hurry to cash in if that is the case. 

Typo - meant to say 3 year and one day rule