Autumn Statement ISA on Death

Autumn Statement ISA Tax Free on Death.

Transcript:

“Hello there, still running with my autumn statement and the Chancellor finishing his speech just over an hour or so ago now, so the pre-budget report December 2014 and the subject for this video is the changes to ISAs. 

First things first, the simple things in terms of the Chancellor confirmed the annual ISA allowance for adults increases from, so with effect from next April, £15,000 to £15,240 and then for the junior ISA, for your children, the junior ISA, the allowance moves from £4,000 to £4,080. So nice and simple the allowances as increased as expected.

Now what was interesting in the Chancellor's speech was a fundamental change to ISA rules for married couples and civil partners.  So what happens today is if both you and your husband or wife, your legal spouse or your civil partner, if one of you dies then your ISA allowance have technically been lost.  Your ISA on death, in your own name, forms part of your estate, there subject to inheritance tax etc. and then if you've left your money to your legal partner well they can't reinvest that money back in an ISA so that tax privilege has been lost.

So what the Chancellor announced and made a big ‘hooha’ about this was on death of a legally married or civil partnership couple you can pass your ISA allowance funds across to your partner.  So let's say you both got £80,000 in ISAs, one of you passes away and you’re left your money to your partner well they’ve got their own money in ISAs but then they can reinvest what you've accumulated in ISAs into their ISA and the whole of it then, so you haven't lost your whole family’s cumulative ISA, tax efficient funds.   So that's all well and good, that's quite nice.

However, I don't think they’ve gone far enough with this and certainly the small print hasn't covered it.  It’s those funds, ISA funds are subject to inheritance tax so still inheritance tax is payable on your estate potentially. I accept if you left it to your spouse to your partner no inheritance tax to pay anyway. 

So I get that but, the big thing for me here is ISAs are means tested for care fees. So fundamentally from me, for people who are in in their elder years, the wise type as it were, you’re a little bit older and you're in your 60s 70s or 80s which, let’s be realistic that’s where we’re closer to death, I think this is a backdoor into the Chancellor encouraging people to keep their money in ISAs.  So if you and your partner have got ISAs and you leave everything to your wife, to husband, your civil partner, they’ve still got your ISA allowance they move their, in the example I gave earlier their £80,000 into ISAs, no tax to pay the transfer between spouses, civil spouses so no inheritance tax to pay, marriage or civil partnerships. 

However, it just means more money is still available for means testing for care on the survivor of the first person.  Talk to me, contact me about non-means tested assets because the ISA thing isn't a bad thing but equally I think it's a backdoor route to encourage people to keep more money themselves on the death of the first partner which then ultimately can be means tested for care.  Thanks very much for watching.”