New ISA Inheritance Rules

New ISA Inheritance Rules

The new ISA regulations have been amended in order to provide an additional ISA allowance for the spouse or civil partner of an ISA saver who dies on or after 3rd December 2014. This will be equal to the value of the deceased person’s ISA savings at the time of their death, and will be in addition to the normal ISA subscription limit.

This measure will enable the spouse or civil partner of a deceased ISA saver to benefit from an additional ISA allowance, and therefore to have more of their savings tax advantaged.

Example:

William died on 5th December 2014, leaving £50,000 of ISA savings and investments to his wife Anne. On 6th April 2015 she is given a one-off tax-free allowance of £50,000 to invest into a new or existing ISA, on top of her existing ISA allowance of £15,240. This gives her a combined tax-free ISA allowance of £65,240.

To conclude, any money you inherit this way will be in addition to any ISA allowance you have. This does not apply to common-law partners.

Important Considerations:

-These new rules should prompt individuals to redraft or make a will in order to ensure their ISAs are left to each other, or they are at risk of missing out on this new tax break.

-The value of ISAs are subject to inheritance tax on death with one main exception – where ISA investments qualify for business property relief such as qualifying AIM shares held for a two year period. Please note transfers of ISAs between spouses on death are free from IHT.

Contacting an Independent Financial Adviser can help you understand what these new rules mean to you and how they can benefit you.

This article is intended for information purposes only and should not be taken as advice.

Should you invest in a Pension or an NISA?

Should you invest in a Pension or an NISA?

Determining whether to invest within an NISA or a pension has been distorted due to the drastic changes that have been made to these investment wrappers recently.

Therefore, establishing the right place to save for your retirement can be difficult to decide.

If we begin with pensions, the new rules will allow individuals aged 55 and over to take income from their pension pot whenever they want, and how ever much they wish, whilst still retaining the 25% tax free allowance.

The New ISA rules have allowed individuals to increase the annual allowance to £15,000 and now individuals can invest as much cash into their ISA as they want. The NISA now allows transfer from Stocks & Shares to Cash, enabling clients to reduce risk from asset backed to deposit based.

Considering these changes the main benefits investing within a pension includes:

  • Pension contributions can take advantage of tax relief. For example, if you make monthly pension contributions of £500 and are a basic rate tax payer, you will gain an extra £125 per month from tax relief, taking your gross monthly contribution to £625. Higher and Additional rate tax payers can claim a further 20% or 25% via tax return.
  • When taking income from your pension pot, 25% of this can be taken out tax free.
  • If you die before age 75, your pension can be passed on to your spouse free from IHT tax.

The main benefits investing within an NISA:

  • All withdrawals from an NISA are completely tax free.
  • The benefits within a NISA can be accessed at any age, whereas the minimum age for accessing your pension benefits is currently 55.
  • In the event of your death, your NISA benefits will be able to be passed on to your spouse in the form of an additional NISA allowance.

Therefore, having a range of investment options allows you to take advantage of the different benefits provided by different saving vehicles. Seeking professional help from Independent Financial Advisers can enable you to receive the best investment options in order to provide you with a more efficient saving method either for your retirement or even just for a rainy day.

This is intended for information only and shouldn’t be taken as advice.

Understand the New NISA Rules

On 1 July 2014 ISAs changed. The New ISA, or “NISA” (New Individual Savings Account) changes allow ISAs to be used as a home for even more money by increasing the yearly contribution limit, and improve flexibility by allowing money to be transferred from stocks and shares ISAs into cash ISAs.

NISA qualification

Different NISAs have varying degrees of qualification. You must be:

  • Aged 16 or over to open a cash NISA
  • Aged 18 or over to open a stocks and shares NISA
  • There are separate NISAs for children under the age of 16 – these are called junior NISAs

NISA allowance

The allowance is the amount the government permits you to invest in your NISA accounts during each tax year. At the start of each new tax year (6 April) you’ll receive a new allowance. If you don’t use it, you lose it – the allowance can’t be rolled over to the next tax year. By using your NISA allowance each year it’s possible to accumulate a significant amount of tax-efficient savings.

In the 2014-15 tax year, individuals can invest up to £15,000 a year in cash NISA accounts, stocks and shares NISAs, or any mixture of the two – you can save the entire £15,000 in cash if you so wish. In the 2015-16 tax year this limit will increase to £15,240.

Remember that you’re only able to open a maximum of one cash NISA and one stocks and shares NISA each year. Once open you can transfer money between these different types of NISAs freely, subject to your provider’s terms.

This differs to the old Individual Savings Account (Isa) rule where you could transfer money from cash ISAs to stocks and shares ISAs, but not vice versa.

Transferring NISAs

You can easily switch your NISA provider without losing your tax-free allowance, but it’s vital that you transfer the NISA rather than withdrawing the money to open a new account.

Under the old Isa rules, cash ISAs could be transferred into stocks and shares ISAs, but not vice versa. NISAs allow transfers either way – from stocks and shares to cash and vice versa.

As with ISAs, it is also still possible to transfer each type of NISA to another product of the same type. You can, for example, transfer one cash NISA to another, something you may want to consider to obtain a better interest rate.

Within a tax year you’re only able to transfer the whole of your annual NISA to a new provider. Amounts from previous years may be transferred as a whole or in parts as you wish, but you should be aware that not all NISA providers will allow part transfers.

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