Inherited ISA Allowance

Sadly, my mum died at the end of last year.  In her will she left everything to my dad, so probate has been easy to do.  Most of her investments were in ISAs but I’m a little concerned that dad may break ISA allowance rules if we just transfer the ISAs into his name – there’s about £100,000 to be transferred.  Do we need to invest £20,000 each year for five years?

Carl responds

If you haven’t already done so, you will need to notify your mum’s ISA providers of her death and they will change her ISA records to show that she is deceased.  The ISAs will remain invested and accrue returns, where possible, until further action is taken.

The good news is that ISA rules allow for surviving spouses or civil partners to inherit a one-off ISA allowance equivalent to the amount that the deceased partner held in ISAs.  It doesn’t matter if the ISAs themselves have been left to someone else – it is the allowance that is inherited rather than the investment.  This is known in the financial sector as an additional permitted subscription (APS).  It means that the surviving partner can invest up to the value of the APS into ISAs without using their own current year’s allowance.

The APS can only be claimed if the couple were married or in a civil partnership and were still living together and not legally separated when the first partner died.  It cannot be claimed by co-habiting couples.

To claim the APS, your dad will need to complete and return a form to the ISA provider(s) – one form for each provider – together with a copy of the Grant of Probate to register the appropriate APS.  It is generally easiest to register multiple ISAs with the existing providers, but you can transfer the total inherited ISA allowance to a specific provider at this stage if you prefer.  The allowance is available to your dad for either three years after your mum’s death or 180 days after the administration of the estate has been completed.  For ‘in specie’ transfers, the time limit is within 180 days of beneficial ownership passing to your dad.

It’s important to bear in mind that your dad’s investment preferences and objectives may be different to those that governed your mum’s strategy.  He may also be in a different position with regard to income and inheritance tax planning.  I recommend you get independent financial advice about what investments will be suitable for your dad.

Any opinions expressed in this article do not constitute advice.  The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.