“Tonight, we’re talking about death” [Alan Partridge]
A rather morbid topic this week, but it’s a question thatcomes up quite regularly.
If you die with money held in an ISA, either cash or stocks & shares, your spouse or civil partner can apply for an ‘Additional Permitted Subscription’ (APS), enabling them to top-up their own ISA over and above the normal £20k allowance.
The APS explained
The APS was introduced to allow a widow(er) to continue to benefit from tax-free income and growth on an amount equal to the value of any ISA their deceased spouse or civil partner held at the time of their death.
Eligibility & time limits
· You can only claim an APS for a deceased spouse or civil partner who was living with you at the time of death (i.e. not separated).
· The APS must be used within three years of the date of death, or within 180 days of the completion of the administration of the estate, if this is later.
· Non-UK residents are generally not permitted to subscribe to an ISA. However they can still apply for and use the APS.
Calculating the APS
When an investor dies, their ISA manager will perform APS calculations.
Since 2018, the APS is the higher of:
· The value of the ISA at the date of death (APS 1),
· The value of the ISA at the date of it ceasing to be a so-called ‘continuing ISA’ (APS 2), which is the earlier of i) the completion of the deceased’s estate (most common); ii) the closure of the ISA account; or iii) the 3rd anniversary of the death.
Consider the following example:
Kate is dealing with the estate of her late husband, John, who passed away in September 2023. Probate was granted showing the following ISA values:
Date of death values:
· Cash ISA: £40,000
· Stocks & shares ISA: £150,000
· Total APS 1value: £190,000
The closing values when the administration of the estate was completed in April 2024 were:
· Cash ISA: £41,000
· Stocks & shares ISA: £170,000
· Total APS 2value: £211,000
Kate is entitled to an APS for the greater of the date of death value (APS 1) and the value when the administration of the estate is complete (APS 2). Accordingly she can apply for an APS value of £211,000.
That is, she is entitled to an additional ISA allowance of £211,000. This must be used within three years of the date of death and is in addition to her normal allowance of £20,000 per tax year.
Note here, you don’t have to wait for APS 2, but if you start to utilise APS 1, you’ll no longer be eligible for APS 2.
APS calculations are performed by each ISA manager. For example, if the deceased held 3 different cash ISAs and 2 stocks & shares ISAs, you’ll need to make 5 separate APS applications.
Claiming the APS
The APS is claimed via the chosen ISA manager of the surviving spouse / civil partner. They will then contact the deceased’s ISA manager(s) in order to claim the APS.
Continuing the example above, say Kate has investments with AJ Bell, whereas John had a cash ISA with Virgin Money and a stocks & shares ISA with Fidelity. Kate would instruct AJ Bell to claim the APS from Virgin and Fidelity.
Disclaimer: When investing, your capital is at risk. The value of your investment (and any income from them) can go down as well as up, and you may get back less than you invested, particularly where investing for a short timeframe (we normally recommend a horizon of at least 5 years).Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
While we believe this this interpretation to be correct, it cannot be guaranteed that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Tax rules and legislation can change.
Using the APS
A crucial point here is that the APS is independent of the assets held within the ISA. That is, even if the ISA assets aren’t inherited by the surviving spouse or civil partner, they can still apply for the APS and make contributions from their own assets.
Again, continuing the same example, say John had left his Cash ISA savings to his children, Kate could still apply for and use the APS in respect of these monies, but would need to fund the extra ISA subscription from other sources, e.g. surplus cash or taxable investments (‘Bed & ISA’).
Also, the new ISA doesn’t have to mirror the type of ISA that the deceased held. For example, if the original ISA was a Cash ISA, the APS could be used to fund a Stocks & Shares ISA, and vice-versa.
As always, if you have any questions on the above, please let me know.
Summary
In summary, the APS is a way for people to inherit their deceased spouse or civil partner’s ISA, in the form of an increased one-off allowance, to be used within 3 years of the date of death. This allowance is on top of their own £20k allowance per tax year.
Generally speaking, the APS is the higher of the ISA value at the date of death or when the estate is ‘completed’ and it can be applied to any new or existing ISA, of any type.
Disclaimer: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only. Since I don’t know your specific situation, none of this information should be construed as tax or financial advice. It is not an offer to purchase or sell any particular asset and it does not contain all the information which an investor may require in order to make an investment decision. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.
