Muras Matters: New ISA Advantages

New ISA Advantages

There have been two important recent variations to Individual Savings Accounts (“ISAs”), the first change came into effect on 3 December 2014 and introduced new Inheritance Tax advantages to ISAs. The second change introduced a new form of ISA designed to help first time buyers and this should be available from 1 December 2015.

Transferring an ISA on death

An ISA forms part of your estate on death but it may be possible to transfer the balance to your surviving spouse without incurring Inheritance Tax (“IHT”). For deaths prior to 3 December 2014, your spouse would be liable to Income Tax and Capital Gains Tax (“CGT”) on subsequent income and gains generated from the ISA.

Since 3 December 2014 the surviving spouse can receive an enhanced ISA allowance on top of their own allowance, preventing further tax charges on future income and gains. In order to do this, the surviving spouse must:

  1. inherit the ISA, which can be problematic if the deceased didn’t leave a Will;
  2. hold an ISA account with the same manager as the deceased, unless HMRC authorise otherwise;
  3. not have separated before death;
  4. be tax resident in the UK;
  5. claim the additional allowance within the time limits, broadly before the later of 180 days after probate or 3 years since death.

With ISA’s continuing to be favoured by the Government, the ability to inherit an ISA allowance can be very valuable. Care should be taken to ensure your Will specifies who should inherit it and to make sure your ISA qualifies.

Help to Buy ISA

The 2015 March Budget included a new form of ISA aimed at first time home buyers, called the Help to Buy ISA which should be available from 1 December 2015. The government contributes £50 for every £200 put into the ISA up to a maximum of £15,000 (including the government’s share) and anyone can contribute to it, including family and friends. Every individual is entitled to a Help to Buy ISA, subject to the conditions listed below, therefore a couple can save £30,000 together.

The conditions are:

  1. The Help to Buy ISA is only available to those over 16 years old;
  2. After an initial deposit of £1,000 the maximum contribution is £200 per month;
  3. Only people who do not own a home qualify;
  4. The Help to Buy ISA is only available to people who don’t have a cash ISA;
  5. The money must be put towards the purchase of a home;
  6. The home cannot be worth over £450,000 in London or £250,000 elsewhere;
  7. The Help to Buy ISA must be opened before 1 December 2019;

If you have any questions about the tax implications of your investments or you are concerned about your tax liabilities in general then please contact our Tax Director, Jenny Marks.

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