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Updates required to ISA terms and conditions - treatment of ISAs on death

Updates required to ISA terms and conditions - treatment of ISAs on death

  • United Kingdom
  • Financial services and markets regulation

14-02-2018

Revised ISA Regulations will change the treatment of ISAs on the death of an ISA holder from 6 April 2018.

Under the current rules, when an ISA holder dies their ISA(s) ceases to be exempt from tax with effect from the date of their death. Under the new rules, the ISA(s) of any person who dies on or after 6 April 2018 will be designated as a “continuing account of the deceased investor” and will continue to be exempt from tax until the earlier of the closure of the account, the completion of the administration of the investor’s estate or the third anniversary of the investor’s death. When the account ceases to be a continuing account of the deceased investor, the ISA wrapper will be removed and the account will no longer be exempt from tax.

Where an ISA becomes a continuing account of the deceased investor, no further subscriptions can be made to the account but it is possible for the account to continue to be managed in accordance with its terms and conditions.

This change will also have an impact on the treatment of additional permitted subscriptions. Currently, on the death of an ISA holder the value of any additional permitted subscriptions is the value of the ISA at the holder’s death. However, this will change in respect of any additional permitted subscriptions that relate to an ISA where the holder dies on or after 6 April, this year and the spouse or civil partner who is entitled to the additional permitted subscription will be able to use the higher of the value calculated at the death of the ISA holder or, provided they have not used any of the additional permitted subscriptions they are entitled to, the value of the account at the point when it ceases to be a continuing account of the deceased investor. If the spouse, or civil partner, waits until the account has ceased to be continuing account of the deceased investor, and the value of the account has fallen, provided they have not already made use of any of the additional permitted subscriptions, they will be entitled to the higher value at the date of the ISA holder’s death. On the other hand, if the value has increased at the point when the account ceases to be a continuing account of the deceased investor, they will be entitled to this higher amount provided they have not already used any additional permitted subscriptions. If the spouse, or civil partner, makes use of additional permitted subscriptions at any time during the period when the account is a continuing account of the deceased investor, they will only be entitled to additional permitted subscriptions up to the value of the ISA holders ISA at the date of their death.

Impact

ISA managers will need to update their processes so they are able to provide the value of a deceased investor’s ISA, at the date of death or on the date that it ceases to be a continuing account of the deceased investor, whichever is the higher, to another ISA manager if the spouse, or civil partner, asks to use their additional permitted subscriptions with another ISA manager.

ISA managers will need to review and amend their ISA terms and conditions to incorporate these changes, and also consider any updates to ancillary documents. Changes to existing operational processes may also be required. The Guidance Notes for ISA managers have been updated to reflect these changes.

How can Eversheds Sutherland help you

Eversheds Sutherland has extensive experience of advising ISA managers on compliance with the ISA Regulations, the Guidance Notes for ISA Managers, changes to terms and conditions and other customer facing documents. Any of the contacts listed below, or your usual Eversheds Sutherland contact, will be happy to discuss how we can help you implement changes to customer documentation and processes.

For more information contact

Hannah Jones, Senior Associate

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