Income Tax: extending Individual Savings Account tax advantages after the death of an account holder
Published 9 December 2015
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Who is likely to be affected
Individuals administering the estates of deceased Individual Savings Account (ISA) savers and beneficiaries of these estates.
Banks, building societies and other financial institutions that offer ISAs.
General description of the measure
The measure will allow the ISA savings of deceased individuals to continue to benefit from income tax and capital gains tax advantages, where these savings are retained in an ISA.
Policy objective
The measure will reduce the tax chargeable on savings income after the death of an ISA saver and simplify the tax-advantaged transfer of ISA savings on death.
Background to the measure
At Autumn Statement 2014, the government announced that surviving spouses or civil partners of deceased ISA savers would receive an additional ISA allowance. This change, which was implemented from 6 April 2015, enables bereaved spouses and civil partners to reinvest inherited savings into their own ISA, without this reinvestment counting against the annual ISA subscription limit.
At Autumn Statement 2014, the government also announced that it would continue to examine the issue of taxation of former ISA assets during the administration of an estate, and would look to legislate in the next Parliament to extend ISA tax advantages into this administration period.
This measure was announced at Autumn Statement 2015.
Detailed proposal
Operative date
The measure will have effect during 2016 to 2017, following Royal Assent to Finance Bill 2016, consultation on further detail of the change and amendment of the ISA rules by secondary legislation.
Current law
The ISA rules are set out in the Individual Savings Account Regulations 1998 (SI 1870/1998) (ISA Regulations). These regulations are made under powers in Part 6 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA) and Part IV of the Taxation of Chargeable Gains Act 1992 (TCGA).
Currently, the ISA status of savings (and therefore ISA tax advantages) cease on the death of the account holder. Tax is chargeable on any subsequent income from these savings under Chapter 6 of Part 5 of ITTOIA, which concerns beneficiaries’ income from estates in administration.
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to extend the ISA regulation-making powers in ITTOIA and TCGA, so that ISA status can be extended to the accounts of deceased investors by secondary legislation.
These changes will allow the ISA Regulations to provide income tax exemption and relief from capital gains tax for ‘administration-period investments’. These are investments an ISA saver held in their account immediately before their death.
Detailed rules concerning the availability of tax advantages for administration-period investments will be set out in the ISA Regulations, following Royal Assent to the Finance Bill 2016 and technical consultation with ISA providers.
Summary of impacts
Exchequer impact (£m)
| 2015 to 2016 | 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|---|
| - | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
Around 300,000 ISA savers die each year. This measure will reduce tax costs faced by their estates and beneficiaries in certain cases. The impact on individuals (including those administering the estate of a deceased person) and households will depend upon how many estates retain savings in an ISA following the death of the account holder, as well as the further details of the change. These further details will be set out in secondary legislation following technical consultation with ISA providers.
The measure is not expected to affect family formation, stability or breakdown.
Equalities impacts
No detailed evidence on ISA holdings by individuals with protected characteristics is available, although it is not anticipated that the measure will impact adversely on groups sharing protected characteristics.
Impact on business including civil society organisations
The measure will affect banks, building societies and other financial institutions that offer ISAs.
It is anticipated that, in certain cases, the measure will remove the cost for an account provider of altering the tax status of an ISA after the account holder dies. In such cases, an account provider will continue to manage the account as an ISA for longer than would have previously been the case. This means that they will continue to apply the ISA rules, and meet the ISA reporting requirements in relation to the account.
The overall impact upon ISA providers will depend upon how many estates retain savings in an ISA following the death of the account holder, as well as the further details of the change. These further details will be set out in secondary legislation following technical consultation with ISA providers.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
The change is not expected to have a significant operational impact for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communication with affected taxpayer groups and monitoring of the ISA information received annually from ISA providers.
Further advice
If you have any questions about this change, please contact Simon Turner on Telephone: 03000 546588 or email: savings.audit@hmrc.gsi.gov.uk.