Autumn Statement: 'Death tax' removed from ISAs

Chancellor George Osbourne announced in his 2014 Autumn Statement that spouses will be able to inherit their partner’s ISA benefits after death.

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. As of 3rd December, when someone dies, their husband or wife will be able to inherit their ISA and keep its tax-free status.

As it stands, if someone passes away, they are unable to pass on their ISA to their spouse even if they have saved the money together. It is estimated that 150,000 people a year lose out on any tax advantages of their partner’s ISA after death. But now, if an ISA holder dies, they will be able to pass on their benefits to a spouse or civil partner via a new ISA allowance which they will be able to use from 6 April 2015.

This means the surviving spouse or civil partner will be allowed to invest as much into their own ISA as their spouse used to have in addition to their normal annual limit. The limit for the tax year 2014/15 is £15,000 but will again rise to £15,240 in April. There was, however, no mention of excluding assets in ISAs from IHT.

Mr Osborne also announced that there will be plans for the 55% ‘death tax’ which currently applies when you pass an unused pension pot to be abolished. “People will be able to pass on their pensions to their loved ones tax-free”, he said. Additionally, those who die before the age of 75 with a joint life or guaranteed term annuity will also be able to pass it on tax-free.

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