Inheritance ISA Allowance

Under previous guidelines, money saved into an ISA could lose its tax-free status upon the owner’s death. However, in April 2015, this was re-evaluated. Now, you can benefit from your partner’s savings thanks to the Inheritance ISA Allowance.

What is a Cash ISA?

Just like a savings account, a Cash ISA (Individual Savings Account) is a safe, secure way to store your money. The only difference is that any interest you earn on your savings is tax-free.

What are the benefits of an ISA?

There are many reasons to opt for a Cash ISA over alternative savings accounts. Not the least of these, is that they’re a great way of saving for your future. Other benefits include:

  • Currently, all basic rate taxpayers can earn £1,000 of tax-free savings interest per year, under the Personal Savings Allowance (PSA). However, there is no guarantee that this won’t change in the future. With ISAs, you’re guaranteed your savings will always be tax-free. Investing your allowance each year means you can grow your savings without having to pay any tax.
  • If you were to opt for an alternative regular savers account and savings interest rates increased, the money you’d saved may tip you over the Personal Savings Allowance limit.
  • Some types of Cash ISA come with the added benefit of government boosting. For example, the 25% government bonuses offered with Help to Buy ISAs and Lifetime ISAs. 

Are ISAs tax-free?

Yes, with a Cash ISA you can rest assured your savings are not only tax-free, but safe from changing regulations.

The only time when a Cash ISA isn’t exempt from tax is if you are aged 16 or 17 years old, and the money in your account is a gift from a parent. If this is the case, your parents may have to pay tax if parental settlement rules apply.

Cash ISA rules

  • To be eligible for a Cash ISA, you must be aged 16 or over and a UK resident. The only exception to this is in the case of Lifetime ISAs, that require you to be 18 years old
  • You can only open one Cash ISA per year
  • You have a single ISA allowance each year, which you can divide between a Cash ISA, a stocks and shares ISA, an Innovative Finance ISA and/or a Lifetime ISA. With a Lifetime ISA, the maximum allowance is £4,000 each year, meaning you have up to £16,000 to split between the other types

How much can I put in an ISA?

The total amount you can put into a Cash ISA for the 18/19 tax year is £20,000. This is known as the ISA allowance and is available to every person over 16 in the UK. You have the choice of using up the maximum allowance in one account, or splitting between the different types of ISA products.

Any interest your ISA earns doesn’t count towards your Personal Savings Allowance.

When is the ISA deadline?

The ISA deadline is midnight on 5th April each year; this is the end of the tax year. Any unused allowance doesn’t roll over into the new tax year, so you should try to make the most of your allowance before the deadline comes around. For more information on the ISA deadline, refer to our ISA deadline guide.

What are the different types of Cash ISA?

There are a number of different Cash ISAs available to help you achieve your savings goals. Whether you’re saving for your first home or setting up a nest egg for your golden years, there’s an option to suit you.

Fixed Rate ISAs

A Fixed Rate ISA pays a guaranteed amount of interest for a set period of time, from six months to five years. Though withdrawals are permitted, they’re subject to penalties. Consequently, a Fixed Rate ISA is better suited to those who won’t need immediate access to their savings.

Help to Buy ISAs

A Help to Buy ISA is a government scheme designed to help you save for a mortgage deposit on your first home. To qualify, you can’t own a property anywhere in the world.

You can save up to £200 a month in a Help to Buy ISA, and they come with the added bonus of government contributions. In this case, your savings could be boosted by 25%. The minimum government bonus is £400, so you will have to have saved at least £1,600 to qualify for a government bonus.Please note, Help to Buy ISAs are due to be withdrawn in November 2019.

Lifetime ISAs

A Lifetime ISA is a tax-free savings account that also offers a government bonus of 25% on top of the money you put in, up to a maximum of £1,000 a year. With a Lifetime ISA, you can deposit as much as £4,000 per year until the age of 50. Lifetime ISAs can only be opened and funded by those aged 18 to 39.

Junior ISAs

Junior ISAs are tax-efficient ways of saving for your little one’s future. You must be 16 or over and a UK resident to open a Junior ISA on behalf of a child, or be a child aged 16 to 18 to open one for yourself. The Junior ISA allowance for 2019/20 is £4,368.

Find everything you need to know about Junior ISAs here.

Refer to our Cash ISA page to discover the full range of ISAs available with Newcastle Building Society.

How many ISAs can I have?

You can have multiple ISAs at one time, but you can only open or pay into one of each type of ISA using your £20,000 allowance. 

Though you can only open one Cash ISA each tax year, there’s no limit to the number of ISA transfers you can make, should you spot a better interest rate with another provider. However, with Newcastle Building Society, you can open multiple cash ISAs using our CustomISA service. You can find more about that here.

What happens if I take money out of my ISA?

Withdrawals are permitted from most ISAs. However, if you make a withdrawal from a Fixed Rate ISA, you will be subject to a penalty in the form of a loss of interest on your savings.

If you think you will need access to your savings quickly, then you may be best suited to an ISA that doesn’t penalise withdrawals.

In relation to the Lifetime ISA a penalty of 25% of the withdrawal amount will be deducted unless the funds are being used for either:

  • Buying your first house (the account must have been held for a minimum 12 months)
  • You reach the age of 60
  • You are diagnosed with a terminal illness and have less than 12 months to live

Can I transfer my ISA to another provider?

You are permitted to unlimited transfers each tax year. However, you should always check that your new provider accepts transfers, as not all banks and building societies are obliged to do so

Avoid withdrawing money from your ISA yourself, as your savings may lose their tax-free status!

There are a number of reasons you may want to transfer to a new provider. For example, if you’ve spotted better rates elsewhere. Read our complete guide to the ISA transfer process for more information.

Can I inherit an ISA?

If your spouse or civil partner passes away, you will be eligible to receive an Inheritance ISA Allowance. Read more information about inheritance tax allowance in our helpful inheritance tax allowance guide.

Applying for a Cash ISA with Newcastle Building Society

If you'd like to apply for a Cash ISA at Newcastle Building Society, the process is really simple. We also accept ISA transfers, including Lifetime ISAs. To get the ball rolling, simply browse our Cash ISA product range or contact us.​

Though it’s not nice to think about, it’s important to know what will happen to your savings if you or someone you love passes. Below, you will find all you need to know about the Inheritance ISA Allowance.

What is an inheritance ISA allowance?

If your spouse or civil partner passes away, you will be eligible to receive an Inheritance ISA Allowance. Otherwise known as an Additional Permitted Subscription (APS), your Inheritance ISA Allowance is in addition to the annual ISA allowance you already receive, and means you could benefit from paying less tax on your savings.

However, this doesn’t mean you will directly inherit the money in your partner’s ISA(s). Instead, you will inherit the value of the ISAs they held.

For example, if your partner has £10,000 saved into an ISA and they pass away, you will be entitled to save an extra £10,000 tax-free on top of your existing £20,000 ISA allowance 2019/20.

For more information on Cash ISA rules and allowances, read our guides on Cash ISAs and the ISA Deadline.

Does the inheritance ISA allowance affect your ISA allowance?

No, your Inheritance ISA allowance does not affect your ISA allowance. Instead, it is an extension of your existing allowance.

How is the inheritance ISA worked out?

Any ISAs your partner held, whether they were Cash ISAs or Stocks and Shares ISAs, will count towards your Inherited ISA Allowance. The only exception is the Junior ISA, wherein there is no inheritance ISA allowance and any money in the Junior ISA will be paid to whoever inherits their estate.

When it comes to how much ISA inheritance you’re entitled to, this amount will depend on when the death occurred.

  • If your partner died on or before 5th April 2018, your Inheritance ISA Allowance will be the value of your partner’s ISA(s) on the date they passed away.
  • If your partner died on or after 6th April 2018, you can inherit an ISA allowance that is the value of your partner’s ISA at the date of death. However, you also have the option of letting your partner’s ISA(s) remain open and earning interest, and you can then inherit an ISA allowance that is the value of your partner’s ISA(s) at account closure.

What is a continuing ISA?

When an investor dies, an ISA is reclassified as a ‘Continuing ISA.’ Though no money can be paid into it at this point, it will continue to benefit from the tax advantages of an ISA. This means any interest earned will remain tax-free.

A Continuing ISA remains until either:

  • The administration of the estate is complete
  • The ISA is closed
  • It’s been three years since death

How long is an inherited isa allowance available?

Your inheritance ISA allowance will be available for three years after your partner has passed away, or 180 days after the administration of the estate has been completed; whichever one is the later date.

What information will I need to get my inheritance ISA allowance?

To receive the allowance, you will need to provide the following to your bank or building society:

  • The date of your marriage or civil partnership
  • Your partner’s date of birth and the date they passed away
  • Your partner’s address at the time they passed away
  • Yours and your partner’s National Insurance numbers

FREQUENTLY ASKED QUESTIONS

Can my children inherit my ISA?

No, your children can not inherit your ISA. The Inheritance ISA can’t be inherited by children, unmarried partners and other family members.

To receive the APS allowance, you will need to be married to or in a civil partnership with the deceased. You will also need to be living together and not legally separated or in the process of becoming legally separated.

What happens to the ISA when someone dies?

ISA rules on death of holder dictate that the ISA will end when:

  • The executor closes it
  • Or the administration of the estate is completed

Otherwise, your ISA provider will close your ISA three years and one day after you have passed away.

Up to this date, there will be no Income Tax or Capital Gains Tax to pay, but ISA investments will form part of your estate for Inheritance Tax purposes.

Your ISA provider can be instructed to either:

  • Sell the investment and pay the proceeds to the administrator or beneficiary of your estate
  • Transfer the investments of your surviving spouse’s or civil partner’s ISA. This is only possible if they have the same ISA provider as you.

For more information on Cash ISAs, refer to our comprehensive guide to Cash ISAs. For more information on setting up a Cash ISA with Newcastle Building Society, view our full range of products or contact us.