Autumn Statement 2014: The government has announced that, from April 2015, if an individual savings account (Isa) holder dies who is in a marriage or civil partnership, their spouse or civil partner will inherit the Isa tax benefits.
For deaths on or after the 3 December, surviving spouses will receive an additional Isa allowance, equal to the amount the deceased spouse had in their Isa, which can be used from 6 April 2015.
Previously, if an Isa holder died their ISA savings would lose their tax advantages, even if a couple was saving together.
Chancellor George Osborne also announced that the Isa allowance limit will increase to £15,240 from April 2015. This is a rise from the £15,000 announced at the 2014 Budget.
The changes to the starting rate of savings tax also means those earning under £15,600 will not need to pay tax on any of their savings income.
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Danny Cox, chartered financial planner at Hargreaves Lansdown, said: “Couples almost invariably manage their money jointly using individual tax wrappers, such as an Isa, to shelter their savings and investments from tax.
“This change has righted a wrong in the tax system which was the source of deep frustration and additional cost for surviving spouses.”
Couples almost invariably manage their money jointly using individual tax wrappers such as ISA to shelter their savings and investments from tax. This change has righted a wrong in the tax system which was the source of deep frustration and additional cost for surviving spouses.
This is an interesting decision, as it means that pensions could be used to defer tax indefinitely – even across generations. Not too long ago, you had to buy an annuity at retirement to ensure that the tax relief on contributions was recouped by treasury. Even when drawdown was originally introduced, there was a lower limit on the amount that could be taken, for the same reason.
Now not only can the withdrawal of pension be deferred indefinitely, it can even be transferred tax free to the next generation. Of course, dying with unused pensions assets is unlikely to be the main problem facing the next generation of pensioners, and it is important to focus on increasing the size of pension pots. Auto-enrolment is a good start, but more needs to be done.
Whilst an increase to the ISA limit was expected, what came as a welcome surprise was the announcement that, on death, ISA benefits can in the future pass to spouses or civil partners.