Thousands of grieving spouses are unnecessarily paying tax on inherited ISAs

As many as 150,000 married people that die each year are ISA holders, the Tax Incentivised Savings Association (TISA) have said.

The money from those ISAs is inherited by their spouse, but only one in seven of those spouses are making use of laws that were introduced to prevent them from paying tax on that money. That’s 129,000 people needlessly paying tax on their deceased partner’s inherited ISA.

Since April 2015, the ‘additional permitted subscription (APS) allowance’ has made it possible for widows or widowers to receive the savings collected by the deceased even if said funds caused the mourning ISA owner to exceed the usual £20,000 ISA allowance.

Experts obtained information from HMRC utilising a Freedom of Information request. They found that only 14 per cent of grieving spouses in 2018 took advantage of the APS laws.

A total of 61,000 people have benefited from APS since it was introduced, gaining just under £3 billion between them.

In April 2018, the laws on inherited ISAs were extended to prevent the taxing of interest on ISAs after death.

The HMRC estimates the average extra allowance received was £55,000. Experts have used this to calculate a cost of as much as £110 a year in taxes, incurred on those that aren’t making use of the laws, which could have “legitimately been avoided.”

Chief Operations Officer at the TISA, Carol Knight has said: “These figures point to a worrying lack of awareness among consumers when it comes to accessing funds that are rightfully theirs.

“APS is a really useful scheme which provides partners with access to money that could potentially provide much needed financial stability during a difficult time.

“The rules around inheriting ISAs are complicated, and clearly more needs to be done to ensure bereaved partners understand the options available to them.”