ISA rules and Inheritance Tax

15 August 2018

Individual Savings Accounts ISA rules and Inheritance Tax

There’s a fundamental lack of awareness and understanding around Inheritance Tax, especially when it comes to how Individual Savings Accounts (ISAs) are treated after death. Given that some people have been able to amass over £1,000,000 in their ISAs, it’s an area where lack of knowledge could prove costly.

Many people are not aware that ISAs are liable for 40% Inheritance Tax, leaving families across the UK set to pay millions in unnecessary taxes.

Gifted to a partner 

On death, as ISAs can only be gifted to a spouse or civil partner and not children without incurring tax, the Government will ultimately be a major beneficiary of money currently residing in Cash ISAs and Stocks & Shares ISAs. In the last Budget, HM Treasury predicted it would raise £5.3 billion in the 2017/18 tax year in Inheritance Tax, which will eventually increase to £6.5 billion by 2022 to 2023. 

Rules regarding inheritance 

Some people could inherit less than they expected because they aren’t aware or make assumptions about the rules regarding inheritance. In particular, the rules governing the gifting of ISAs and valuable estates mean that many may be faced with a higher than expected Inheritance Tax bill. ISAs remain the ‘go to’ financial product for many people as they look to build up a nest egg in a tax-efficient way during their lifetime. But with such a large number of older people investing in them, there is a worrying lack of awareness that ISAs are subject to a 40% Inheritance Tax charge. ISAs are a great tax efficient investment in your lifetime, but more people need to be thinking about how to pass on their hard-earned money to their loved ones when they die. 

If you need help with your ISA please contact Chris Slatter on cslatter@ellacottswealth.co.uk or 01295 250401.