How the Inherited ISA Allowance Works in Practice
Having spent the last week looking at the AF5 April exam fact-find, it looks as if the inherited ISA allowance may be tested this time round. It meant a bit more research to see how this works in practice. This will be of interest to those studying for any of the CF1, R02, R03, R06, J10, AF1, AF4 or AF5 exams.
Firstly, it applies only to married couples or those in a civil partnership with someone who died after 3 December 2014. It’s also just a one-off amount but which can be used along with the survivor’s own ISA allowance for the year.
The Additional Permitted Subscription
The survivor firstly needs to get in touch with the ISA provider, and once they have provided a copy of the death certificate, they will be given details of the Additional Permitted Subscription (the APS). They will then have to fill in an application form.
The APS is the amount held in the deceased’s person’s ISA at the date of their death which is then available to the survivor. What’s important to realise is that the actual ISA funds will lose their ISA status on the date of death – any return generated after death could therefore be taxable. The rules also only apply to the transfer of the allowance and not the actual funds which will still be moved according to the existing rules in place.
You don’t actually need to inherit the money from your spouse or civil partner to be eligible either – you can use your own money. With investments, if the survivor’s ISA is held with the same provider as the deceased’s, then assets can be transferred directly into the survivor’s ISA without having to be sold. Any other assets which form part of the deceased’s estate cannot be transferred directly so have to be sold first with the proceeds used to make a cash contribution.
With cash, investors can make a contribution either using their own monies or using cash inherited from their husband/civil partner. Money can be paid as a lump sum or some providers will allow instalments.
There are timescales to be mindful of as well. For cash subscriptions the APS is only available for 3 years from the date of death or for up to 180 days after the administration of the estate is complete – whichever of these is the later date. When investments are transferred the period is 180 days from the date the investments are transferred to the survivor. These time periods are known as the ‘permitted period’.
Not Just for UK Residents
Finally the additional allowance is not just limited to UK residents – if someone moved abroad and their spouse had an ISA in the UK when they died, the survivor is also entitled to claim the APS.
Grab the resources you need!
If you’re studying for your CII AF5 exam, and you’re tearing your hair out with worry, why not give yourself an edge by using one of Brand Financial Training’s resources to help you prepare? Grab our free taster to see what’s covered in our AF5 fact-find analysis. Click the link to download the AF5 taster analysis now!
If you’re sitting the AF5 exam next Wednesday, what areas do you think will be the most challenging for you?