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Oct 2020

Can ISAs be Inherited?

Can ISAs be Inherited?

ISAs are an excellent way to save or invest, all while keeping the returns from interest or investments safe from the tax man. Your early allowance for 2020/2021 allows you to put up to £20,000 away each year in order gain tax-free returns. However - what happens to your ISA when you pass away? Is it subject to inheritance tax should you leave your ISA to your loved ones? We've broken down what you need to know here.  

ISAs are an excellent tax-efficient way both to save your money and to invest your money. The main benefit of an ISA is that you can save or invest up to £20,000 for this tax year and the returns you gain on this are not subject to capital gains tax or income tax. This is because ISAs are a government initiative designed to encourage people to save and invest.

However, just because it is tax-efficient method of saving does not mean that ISAs are exempt from all taxation in all situations. One very common way that taxes do affect ISAs is the application of inheritance tax in the instance of the ISA holder’s death.

What is inheritance tax?

Inheritance tax is a kind of tax which is paid on an individuals estate following their death.

Inheritance tax applies to the whole of the estate owned by the individual – which includes the total value of the property, money and possessions owned by the deceased individual, which is payable to HMRC.

Inheritance tax applies only to estates which have a value grater than £325,000.

There are exceptions to this which include: leaving your entire estate to your spouse, civil partner, to a charity or a community organization such as an amateur sports club.

The current standard inheritance tax rate stands at 40%; and this is only charged on the amount which exceeds the thresholds.

ISAs and Inheritance Tax

Emphatically, ISAs are still subject to inheritance tax (IHT), but there are some exemptions to this.

For example, if the recipient of the ISA upon death is the spouse or civil partner of the deceased individual, then the ISA is exempt from inheritance tax due to what is known as the spouse exemption.

In the time period when an estate is being administered (meaning, the time between the individuals death and the transference of the inheritance), the ISA in the deceased name will continue to gain returns or interest.

The basic facts you need to know about ISAs and Inheritance Tax are…

  • During the holder’s lifetime, ISAs are not subject to income tax or capital gains tax
  • Subject to certain time limits, ISAs continue to gain interest and remain exempt from income or capital gains tax during the administration of the deceased estate.
  • ISAs are subject to IHT, unless they are bequeathed to the spouse or civil partner of the deceased (who is still alive).
  • Any surviving spouse/civil partner will then get the equivalent in ISA allowances to the value of their ISAs, beginning from the date of the death of the spouse.

Other Options

If you’re concerned about making sure that your children received your ISA, it might be worth instead opening a JISA for them, if they are under the age of 18.

That account will be opened by you, but will be in their name.

This means that there will be no issue with inheritance of that money upon your death as it is not your money, but theirs.

However, the best course of action if you are concerned about leaving your estate to your loved ones is to get in contact with an inheritance tax specialist and ensure that your will is in order.

Read more about ISAs here. 

Investment Fund Supermarket ISAs

Stocks & Shares ISA

from Fidelity

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Choose from over 4,000 investment options, including one of the widest fund ranges in the UK, plus shares, investment trusts and exchange-traded funds. There’s also expert guidance to help with your investment decisions, which includes a selection of tools and insights from Fidelity’s experts. Capital at risk. Tax and ISA rules apply.
  • Invest From: £25 through regular savings or £1,000 lump sum

Why we like it: Fidelity has lots of investment options, plus an extensive range of guidance tools to help you decide what to invest in. Their award-winning ISA is easy to start and offers great value, their a typical service fee of just 0.35%. Other ongoing charges apply. On top of that, everything is backed by Fidelity’s 50 years of investment experience.

Important: The value of investments can go down as well as up so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Tax treatment depends on individual circumstances and all tax rules may change in the future.

Stocks & Shares ISA

from Hargreaves Lansdown

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Choose from over 2,500 funds, shares, investment trusts and more to build your portfolio. UK and overseas shares. Corporate and government bonds. Exchange Traded Funds (ETFs). Ready-made portfolios to suit your goals and attitude to risk from £1,000. Expert research to help make your decisions. Investment trusts and much more. Capital at risk.Tax & ISA rules apply
  • Invest From: £25 pm or from £100 lump sum

Why we like it: Choose your own funds or alternatively a ready made portfolio. Market-beating savings and discounts of up to 5.5%. No charge to buy and sell funds. Low, tiered annual charges for holding funds, with a maximum of just 0.45% per annum. Free fund updates and analysis from experienced research team. Invest with a financially secure, FTSE 100 company.

Important: The value of your investments can rise as well as fall. You may get back less than you invested. If you’re unsure, we recommend you ask for independent advice.

Stocks & Shares ISA

from AJ Bell

Allows ISA Transfers
  • Protection Scheme: FSCS
  • Fund Choice: 2000+ Funds
  • Invest From: £25 pm

Why we like it: It is simple to invest in a fund online. You will need to open an account first and then choose the fund you are interested in investing in. There are over 2,000 funds to choose from but to make it easier for you AJ Bell have created their favourite funds list which is their pick of the best funds. 

Important: The value of your investments can rise as well as fall. You may get back less than you invested. If you’re unsure, we recommend you ask for independent advice.

Important Risk Information:

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website aims to provide information to help you make your own informed decisions. It does not provide personal advice based on your circumstances. If you are unsure of how suitable an investment is for you, please seek personal advice.

High Income ISAs

High income ISA ideas:

ISAs Products

Cash ISAs

Fixed Rate & Instant Access ISAs:

Cash ISAs: 

Stocks & Shares ISAs

Types of Stocks and Shares ISA include: 

Stocks and Shares ISAs

Latest News

5 Considerations for Your Next Investment ISA

15th March 2021

You've decided to invest your savings into a Stocks and Shares ISA. You'll be using your tax-free ISA allowance for this year before the deadline, while also investing your money for your future. But what do you need to consider before opening an account? We've put together a list of our top five considerations for you to think about before you click "apply". 

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ISA can be confusing at first and this site includes a useful and helpful introduction into the world of ISAs