Using the Additional Permitted Subscription to make ISA wealth IHT-free

By Lora Benson | Aug 25, 2020
You may know that ISAs aren’t exempt from Inheritance Tax and can incur a 40% IHT bill. But did you know an Additional Permitted Subscription can help?

ISAs and IHT 

For more than two decades, Individual Savings Accounts (ISAs) have been the most popular way to save and invest tax-efficiently. Yet most people are unaware that an ISA’s tax incentives don’t include exemption from Inheritance Tax (IHT). In fact, an ISA could be subject to a 40% IHT bill when included as part of a person’s taxable estate, significantly reducing the inheritance intended for children and grandchildren.

Understanding the Additional Permitted Subscription
Although someone who is married or in a civil partnership does not pay IHT on money or property left to them by their spouse, until recently any investments held within an ISA lost their tax benefits when transferred to the surviving spouse. 

However, since 2015, a surviving spouse or civil partner is able to ‘inherit’ the tax benefits of their deceased partner’s accumulated ISAs. This is called the ‘Additional Permitted Subscription (APS) and is effectively an additional one-off ISA allowance to the same value as the deceased’s accumulated ISAs, provided they were still living together at the time of their death. 

Once an APS has been arranged, the surviving spouse can keep the accumulated ISAs with the same product provider, or transfer to a new provider of their choice. Where an investor held ISAs with several companies, a separate APS is available for each. The APS doesn’t affect the surviving spouse’s own annual ISA allowance (£20,000 for the 2020/21 tax year)

Download our case studies to find out how this works in practice here