Widows, widowers and bereaved civil partners have been able to claim an extra Isa allowance since 2014
Bereaved savers are being bamboozled by complex rules on how much of their partner’s Isa allowance they can inherit.
Widows, widowers and bereaved civil partners have been able to claim an extra Isa allowance called the Additional Permitted Subscription (APS) since 2014.
The size of this extra allowance is equal to what your partner had in their Isa when they died. It is on top of your usual Isa allowance (£20,000 for the tax year beginning April 6).
You can put this so-called APS into a cash Isa in your own name. Some banks and building societies offer Isas for this money, with names such as Inherited Isa, Legacy Isa or Additional Permitted Subscription Isa. Others offer ordinary cash Isa accounts.
But new rules introduced in April mean that how much you get now depends on when your partner died.
If they died between December 4, 2014, when the APS was first introduced, and April 5 this year, their Isas lose their tax-free status from the date of death.
This means any interest paid while the estate is being wound up is taxable and cannot be used to boost your APS.
So, if your husband, wife or civil partner had £30,000 in their account when they passed away within this timeframe, this would be all you’d get as your extra Isa allowance.
However, if they died on April 6 this year or later, any interest paid while the estate is being wound up is also tax-free.
This means that if it takes a year or more for the family to go through probate — which is not uncommon — they will not lose out.
But a Money Mail investigation last year found that staff in major High Street banks had no idea these accounts even existed.
Michael Culver, director at Solicitors for the Elderly, says: ‘The service offered by banks is less than satisfactory.
The process should be simpler for them now that Isas retain their tax-free status.’ Dave Beaston, of the Tax Incentivised Savings Association (TISA), says: ‘The rules are confusing for those going through this difficult time.’
At the time of the investigation, two of the largest providers — Lloyds Banking Group, which includes Halifax, and Santander — said they would provide extra training for staff.
When the estate is wound up, you cannot leave the money in the original account, as it is no longer officially an Isa. Instead, you must open an account in your name and transfer the money.
You must use the extra APS allowance within three years of the date of your partner’s death or 180 days of completion of the estate’s administration, if that is later.
You don’t have to wait until you have obtained probate to claim it. However, it is up to banks and building societies as to whether they offer an Inherited Isa account.
Among the best cash Isa deals are Coventry BS Additional Allowance Isa at 1.3 per cent and NS&I Direct Isa at 1 per cent.