Bereaved spouses may be paying unnecessary tax on ISAs

A new Freedom of Information request has revealed that last year only 21,000 people took advantage of a tax scheme that allows a surviving partner to expand their ISA allowance to include funds from their deceased spouse’s accounts.

It is estimated that 150,000 people a year inherit an ISA from a spouse, which means that only 14 per cent are using the little-known incentive.

Introduced way back in 2015, the scheme, known as the ‘additional permitted subscription’, allows the surviving spouse to collect their partner’s savings without penalty during that tax year.

Official figures show that the use of the tax perk remains low since its launch, with only 61,000 partners claiming the allowance so far.

However, HMRC has said that of those that did use the subscription, the average amount that bereaved spouses received via the extra allowance was £55,000.

Unfortunately, not all providers are obliged to accept a transfer of the allowance, which is why current figures may remain so low.

In order to make a request for the subscription, a bereaved partner must provide:

  • the full name of the deceased
  • the permanent residential address of the deceased at the date of death
  • the date of birth and date of death of the deceased
  • the deceased’s National Insurance number (if known)
  • the date the marriage or civil partnership with the deceased took place
  • the identity of the account manager who managed the deceased’s ISA

These need only be provided when the first additional permitted subscription is made to the ISA provider.

Surviving spouses must also confirm that:

  • they are the surviving spouse of the deceased
  • they were living with the deceased at the date of the deceased’s death
  • the subscription is made under the provisions of regulation 5DDA of the ISA regulations
  • the subscription is being made as either:

– an ‘in specie’ transfer, within 180 days of beneficial ownership passing to the surviving spouse.

–  cash subscriptions, within three years of the date of death, or if later, 180 days of the completion of the administration of the estate.