As is so often the case, an announcement that seems BRILLIANT actually turns out to be less so.
So from the joy of ISAs being potentially outside of IHT, it is more a 'first death' benefit.
Still good, but not as great as I'd hoped it would be.
ISA inheritability makes 'allowance' for spouse
Details have begun to emerge on how the new inheritable ISA rules will operate. And the good news is that it will be achieved by an increased ISA allowance for the surviving spouse rather than the actual ISA assets themselves. This means you won't have to revisit their wills.
How the rules will workIf an ISA holder dies after 3
December, their spouse or civil partner will be allowed to invest an amount
equivalent to the deceased's ISA into their own ISA via an additional allowance.
This is in addition to their normal annual ISA limit for the tax year and will
be claimable from 6 April 2015.
This means the surviving spouse can continue to enjoy tax free investment returns on savings equal to the deceased ISA fund. But it doesn't have to be the same assets which came from the deceased's ISA which are paid into their spouses new or existing ISA. The surviving spouse can make contributions up to their increased allowance from any assets.
What it means for estate planning
By not linking the transferability to the actual ISA assets, it provides greater flexibility and doesn't have an adverse impact on estate planning that you may have already put in place.
For example, had it been the ISA itself which had to pass to the spouse to benefit from the continued tax privileged status, it could have meant many thousands of ISA holders having to amend their existing Wills. Where the spouse was not the intended beneficiary under the Will or where assets would have been held on trust for the spouse - a common scenario - the spouse would miss out on the tax savings on offer.
Instead it's the allowance which is inherited, not the asset. This means that the spouse can benefit by paying their own assets into their ISA and claiming the higher allowance. And the deceased's assets can be distributed in accordance with their wishes, as set out in their Will.
The tax implications
The tax benefits of an ISA are well documented. Funds remain free of income tax and capital gains when held within the ISA wrapper. And it's the continuity of this tax free growth for the surviving spouse where the new benefit lies. It's an opportunity to keep savings in a tax free environment.
But the new rules don't provide any additional inheritance tax benefits. The rules just entitle the survivor to an increased ISA allowance for a limited period after death. The actual ISA assets will be distributed in line with the terms of the Will (or the intestacy rules) and remain within the estate for IHT.
Where they pass to the spouse or civil partner, they'll be covered by the spousal exemption. Even then, ultimately the combined ISA funds may be subject to 40% IHT on the second death.
With ISA rules and pension rules getting ever closer, it may be worth even considering whether to take up an increased ISA allowance if the same amount could be paid into a SIPP. This would achieve the same tax free investment returns as the ISA and the same access for clients over age 55. But the benefit would be that the SIPP will be free of IHT and potentially tax free in the hands of the beneficiaries if death is before 75.
What's next?
The new allowance will be available from 6 April 2015 for deaths on or after 3 December. Draft legislation is expected before the end of the year and the final position will become clear after a short period of consultation.
The new inherited allowance will complement the new pension death rules - a welcome addition to the whole new world of tax planning opportunities from next April.
This means the surviving spouse can continue to enjoy tax free investment returns on savings equal to the deceased ISA fund. But it doesn't have to be the same assets which came from the deceased's ISA which are paid into their spouses new or existing ISA. The surviving spouse can make contributions up to their increased allowance from any assets.
What it means for estate planning
By not linking the transferability to the actual ISA assets, it provides greater flexibility and doesn't have an adverse impact on estate planning that you may have already put in place.
For example, had it been the ISA itself which had to pass to the spouse to benefit from the continued tax privileged status, it could have meant many thousands of ISA holders having to amend their existing Wills. Where the spouse was not the intended beneficiary under the Will or where assets would have been held on trust for the spouse - a common scenario - the spouse would miss out on the tax savings on offer.
Instead it's the allowance which is inherited, not the asset. This means that the spouse can benefit by paying their own assets into their ISA and claiming the higher allowance. And the deceased's assets can be distributed in accordance with their wishes, as set out in their Will.
The tax implications
The tax benefits of an ISA are well documented. Funds remain free of income tax and capital gains when held within the ISA wrapper. And it's the continuity of this tax free growth for the surviving spouse where the new benefit lies. It's an opportunity to keep savings in a tax free environment.
But the new rules don't provide any additional inheritance tax benefits. The rules just entitle the survivor to an increased ISA allowance for a limited period after death. The actual ISA assets will be distributed in line with the terms of the Will (or the intestacy rules) and remain within the estate for IHT.
Where they pass to the spouse or civil partner, they'll be covered by the spousal exemption. Even then, ultimately the combined ISA funds may be subject to 40% IHT on the second death.
With ISA rules and pension rules getting ever closer, it may be worth even considering whether to take up an increased ISA allowance if the same amount could be paid into a SIPP. This would achieve the same tax free investment returns as the ISA and the same access for clients over age 55. But the benefit would be that the SIPP will be free of IHT and potentially tax free in the hands of the beneficiaries if death is before 75.
What's next?
The new allowance will be available from 6 April 2015 for deaths on or after 3 December. Draft legislation is expected before the end of the year and the final position will become clear after a short period of consultation.
The new inherited allowance will complement the new pension death rules - a welcome addition to the whole new world of tax planning opportunities from next April.
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