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Tax benefits of ISAs

ISAs give you generous tax relief on your investments

What sets ISAs apart from other savings and investment accounts is that any interest on cash savings, gains from investments or income from dividends are tax-free and you don’t have to declare ISAs on your tax return.

Because of their tax benefits, ISAs can help your savings and investments grow faster over time. Investing your ISA in stocks and shares has the added advantage of helping safeguard you from a potential Capital Gains Tax (CGT) bill in the future. CGT is a tax on the gain you make when you sell or dispose of assets such as investments. It is currently charged at 20% for higher-rate taxpayers on gains made that exceed the yearly tax-free allowance. Currently, the CGT allowance is £11,100.

Using your ISA allowance each year enables you to build a substantial tax efficient portfolio.

What happens to an ISA on death?

Rules on ISA death benefits, introduced in April 2015, allow for the transfer of an extra ISA allowance to the deceased’s spouse if they passed away on or after 3 December 2014.

A Bestinvest ISA lets you use an additional allowance on your husband, wife or civil partner’s death. This is equal to the value of their ISA savings and is known as the additional permitted subscription (APS). We understand that these circumstances are difficult and we will assist you at every stage of the process.

What was the old rule?

If someone who held savings in an ISA passed away, the tax-efficient status of the account was lost. Their spouse then began to pay tax on those savings.

What is the new rule?

The surviving spouse can use an additional allowance, which is equal to the value of their partner’s ISA savings, as well as enjoying their own usual yearly allowance. APS can be used for up to 3 years from death.

You don’t inherit the actual assets of the ISA. The deceased’s ISA assets are distributed according to the terms of the Will or intestacy rules and any Inheritance Tax liability will remain. No actual funds are transferred and the extra allowance can be made up from your own assets.

Also, as well as being married or in a civil partnership with the ISA holder, you need to have been living together – if you were separated, either under a court order, Deed of Separation or any other situation that was likely to become permanent, you can’t use the additional allowance.

What does this mean for savers?

They can inherit the value of an ISA tax-efficiently and further protect their money.

If your husband or wife has unfortunately passed away and you are looking to use APS, Bestinvest can help. Just give us a call on 020 7189 2400, request a call back or email us at best@bestinvest.co.uk

OUR AWARDS

Past performance is not a reliable indicator of future returns

The value of your investment can go down as well as up, and you can get back less than you originally invested.

The Bestinvest Online Investment Service, including any account analysis and investment reports provided by our guidance services, is an online execution-only dealing service for investors who want to make their own investment decisions. It does not provide advice on the suitability of products and investments; if you are unsure about the suitability of any investment you should seek professional advice. Clients of our Investment Advisory Service and Managed Portfolio Service can use the website to obtain current valuations of their investments but cannot trade on these accounts online and should call their adviser if they wish to discuss changes to their investments.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Bestinvest, upon request and on a fee basis. Before investing in funds please check the specific risk factors on the key features document or refer to our risk warning notice as some funds can be high risk or complex; they may also have risks relating to the geographical area, industry sector and/or underlying assets in which they invest. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.

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