Bereaved miss out on tax break: Widows, widowers and civil partners have right to inherit Isas… but only one in seven do
Thousands of bereaved savers are missing out on a vital tax break. Widows, widowers and civil partners have the right to inherit Isas under rules launched in 2014.
It means that if your partner had £25,000 in their Isa, you could put this into a so-called ‘additional permitted subscription’ Isa (APS) in your own name and continue to pay no tax on the interest.
The extra is on top of your usual Isa allowance, which is £20,000 for this tax year.
If your partner had £25,000 in their Isa, you could put this into a so-called ‘additional permitted subscription’ Isa ( in your own name and continue to pay no tax on the interest
The allowance was introduced in recognition of the fact that many couples save from joint income, and to help bereaved individuals enjoy the tax advantages they previously shared.
Older women were expected to benefit most from the scheme, estimated to cost £10 million in saved tax this year.
But just one in seven grieving partners took advantage of the tax break, according to a Freedom of Information request by insurer Zurich.
It means billions of pounds are sitting in taxable accounts when they could be in a tax-free Isa. When the new allowance was introduced, HMRC said 150,000 married Isa holders could benefit each year.
But its figures show that over the past three tax years only 61,000 have used the extra allowance out of a possible 450,000 — just 14 per cent.
And the number missing out is likely to be higher because the 150,000 number doesn’t include civil partners, whose surviving partner can also pick up the perk.
Someone who had used their full cash Isa allowance every year since it was introduced in April 1999 may have £100,000 saved.
Even on the average £55,000 inherited Isa allowance, savers could be missing out on £110 a year.
Earning 1 per cent interest on money held outside an Isa, savers would make £550 a year and could pay unnecessary tax at 20 per cent— or £110.
This presumes they have already used up their personal savings allowance of £1,000 for basic-rate payers.
Alistair Wilson, Zurich’s head of retail platform strategy, says: ‘The take-up of this tax break looks shockingly low. The bereaved who miss out will be hit by a tax bill that eats into the returns on their savings.’
It follows an investigation by Money Mail 18 months ago which found that banks were making it difficult to claim the extra allowance. Readers said some bank staff had no idea the Isa inheritance rules even existed.
Michael Culver, a director at Solicitors for the Elderly, says: ‘It is still very confusing for the bereaved. It appears banks are not doing enough to train their branch staff. More needs to be done to make it easier for the bereaved to understand their options.’
Not all providers offer the inherited Isa or APS on savings. Among the best deals is Coventry BS Additional Allowance Isa at 1.4 per cent, but it will let you use your extra allowance only if your partner’s Isa was originally with it.
Skipton BS pays 1 per cent and accepts money from other providers into its Legacy Isa.
You must use the allowance within three years of the date of death, or 180 days of completion of the estate’s administration, if that is later.