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ISA rules and inheritance tax

There’s a fundamental lack of awareness and understanding around Inheritance Tax, especially when it comes to how Individual Savings Accounts (ISAs) are treated after death. This potentially leaves families at risk of paying millions in unnecessary tax.
Given that some people have been able to amass over a million pounds in their ISAs, it is an area where lack of knowledge could prove costly.
51% of over 45s do not know that ISAs are liable for Inheritance Tax (with the exception of AIM ISAs), leaving families across the UK set to pay millions in unnecessary taxes. This is according to findings from an annual Inheritance Tax monitor survey carried out in 2017.
On death, as ISAs can only be gifted to a spouse or civil partner and not children without incurring tax (assuming the estate is above the nil rate band), the Government will ultimately be a major beneficiary of money currently residing in Cash ISAs and Stocks & Shares ISAs. In the last Budget, HM Treasury predicted it would raise £5.3 billion in the 2017/18 tax year in Inheritance Tax, which will eventually increase to £6.5 billion by 2022 to 2023.
The research also revealed 77% think the UK’s Inheritance Tax rules are too complicated. Yet despite this, only 33% have sought professional financial advice on Inheritance Tax planning.
Of those who did seek advice, 42% spoke to a professional financial adviser.
Some people could inherit less than they expected because they aren’t aware or make assumptions about the rules regarding inheritance. In particular, the rules governing the gifting of ISAs and valuable estates mean that many may be faced with a higher than expected Inheritance Tax bill.
ISAs remain the ‘go to’ financial product for many people as they look to build up a nest egg in a tax-efficient way during their lifetime. But with such a large number of older people investing into them, there is a worrying lack of awareness that ISAs are potentially subject to a 40% Inheritance Tax charge. ISAs are a great tax efficient investment in your lifetime, but more people need to be thinking about how to pass on their hard-earned money to their loved ones when they die.
Early preparation is the key to success here. Taking advantage of methods to secure and protect your wealth will ensure that more wealth can be passed onto the next generation – to find out more, please contact Matthew Bromley, Chartered Financial Planner at Cowgill Holloway Wealth Management, for further advice or to discuss your situation.


The information was correct at time of publishing but may now be out of date.

Wealth Management
Posted by Cowgills
6th November, 2018
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