Proposed legislation could complicate ISA inheritance

Proposed legislation could complicate ISA inheritance

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Inheriting tax free ISAs from your spouse could be about to become a little more complicated if new rules proposed by HM Revenue & Customs (HMRC) come in to effect. The upshot is if your spouse, or civil partner, passes away you will have to open up a new ISA with your late spouse’s provider. Acumen explores what this could mean for you.

New ISA rules

As part of his December 2014 Autumn Statement Chancellor George Osborne announced that people inheriting ISA wrappers from their spouses would benefit from the vehicles’ tax-free status.

So essentially if an ISA saver dies their spouse or civil partner can transfer the ISA wrapper and keep the tax advantages in a one-off arrangement.

However, a major tenet of draft legislation, published by HMRC earlier this month, proposed that one condition of inheriting the ISA was that the new ISA would have to be managed by the same provider who managed the deceased partner’s account.

Angela Maher, Managing Director at Independent Financial Advisers, Acumen Financial, said: “If the legislation goes through in its current form, we think it would almost certainly cause problems for our clients.

“It doesn’t seem logical to insist that the new ISA should be opened with the provider of the deceased spouse. It might be the same as the ISA wrapper that the widow or widower is using but then again it might not.

“Plus, although consolidating ISAs in one place makes perfect sense, the current proposals could result in unnecessary transfers. We understand that providers are currently discussing the proposals with HMRC so watch this space!”

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