Further improvements to ISAs

Saving moneyOver the past five years, a range of mostly welcome changes to ISAs (Individual Savings Accounts) have included broadening the scope of allowable investments and a significant increase in the annual allowance. Now spouses or civil partners will also be able to inherit a deceased partner’s ISA accounts.

Previously, ISAs lost all their tax benefits on the death of the holder. Now the surviving spouse or civil partner will be deemed to have an additional ISA allowance, equal to the amount the deceased partner had in their ISAs, which can be used from 6 April 2015. This applies to both cash and stocks & shares ISAs.

According to the Treasury, 150,000 people per year lose out on the tax advantages of their partner’s ISA when their partner passes away. The new rules mean spouses can preserve any tax-free income stream their partner had received. The new structure is slightly complicated – technically, the ISA wrapper and its tax benefits still disappear on death and the investments are still theoretically part of the estate for inheritance tax purposes. This means that if the ISA is assigned to anyone but the spouse, it will be taxed as before.

The ISA limit is also set to increase to £15,240 from 6 April 2015. After the significant increase to £15,000 in July of this year, the rise is linked to the September inflation figure, as will be the case in future. The limit for Junior ISAs increases from £4,000 to £4,080.

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The value of your investment can go down as well as up and you may not get back as much as you originally invested.

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