You are here

‘Death tax’ lifted from ISA savings

The chancellor was unable to deliver on the much-anticipated increase in the inheritance tax threshold

4 December 2014

Add comment

Savers will now be able to pass on ISA saving to their surviving spouse or civil partner free from tax, George Osborne announced in his Autumn Statement.

The move follows on from the abolishment of the 55 per cent inheritance tax applied to pensions for anyone who dies under the age of 75.

The chancellor told a packed House of Commons: "Our £15,000 new ISAs are hugely popular with savers too. Next April, we will increase the limit to £15,240. But, Mr Speaker, we will do something more. At the moment, when someone dies, the savings in their ISA lose their tax-free status and their spouse starts paying tax on that money.

"From today, I can announce that when someone dies, their husband or wife will be able to inherit their ISA and keep its tax free status. Pass on your ISA tax free. Pass on your pension tax free. We are delivering fairness for savers."

James Ward, private client partner at Seddons said that the changes will be welcomed across the country.

"The extension of ISA-related tax benefits to spouses and survivors will certainly be universally welcomed, and redresses a long noticeable inequality when it came to inheritance and ensuring the livelihood of survivors in the event of death. It adds a very helpful - and tax efficient - mechanism to facilitate the transfer of wealth, which will greatly benefit widows and widowers across the UK."

James Hender, partner and head of the private wealth group at Saffery Champness said that the tax break is not as good as the much-anticipated increase of the inheritance tax threshold from £325,000 to £1m, but will be enough to appease many.

"Savings in an ISA have always passed free of inheritance tax to a spouse or civil partner. The good news announced by the Chancellor is that those savings will remain within an ISA wrapper for the recipient, reducing the income tax burden for pensioners and other people who are reliant upon much reduced savings income.

"This measure is not quite the increase of the tax-free allowance to £1m that some were predicting, but will be very welcome in the Conservative heartlands."

Categorised in:

Tax & Wealth structuring