Millions of Isa savers were given a surprise boost after the chancellor abolished the “death tax” on the popular accounts.
Isas can now be passed on to a spouse tax-free, George Osborne said in the autumn statement. Previously the Isa tax “wrapper” passed away with its owner, and the money that had been sheltered became liable for income and capital gains tax.
According to the Treasury, 150,000 married Isa savers die each year, and the tax advantages they died with them, even if they were saving as a couple. But from now, when an Isa saver who is married or in a civil partnership dies, their spouse or civil partner will inherit their tax advantages.
The surviving partner will be able to invest as much into their own Isa as their spouse used to have, on top of their usual allowance, the government said. As a result they “will be better able to secure their financial future”.
Danny Cox at investment firm Hargreaves Lansdown said the surviving partner would have an additional one-off Isa allowance equal to the amount their deceased spouse had in their account, which they could use from 6 April 2015.
“This change has righted a wrong in the tax system which was the source of deep frustration and additional cost for surviving spouses,” he said.
Maike Currie at Fidelity Personal Investing called the announcement “a welcome move for Isa investors, who will be safe in the knowledge that their savings will be protected”. She added: “For many savers the accessibility and flexibility of Isas and the up-front tax breaks of pensions mean a combination of the two makes the most sense. Now it is even more the case.”
The move is the second piece of welcome news on Isas this year; in the budget in March, the Isa investment limit was increased to £15,000 a year with effect from 1 July. The Treasury said that from April 2015, the Isa allowance would rise to £15,240.
The chancellor also announced that the interest rates on the planned new “pensioner bonds” would be unveiled on 12 December. The government has previously announced that from January 2015, people aged 65 and over will be able to take out new savings bonds run by National Savings & Investments. Up to £10bn worth of bonds will be issued, with two fixed-rate “market-leading” products on offer. Osborne had previously indicated pensioners could expect interest rates to be around 2.8% for the one-year bond and 4% for the three-year version, with an investment limit of £10,000 per bond.
The highest rate savers can currently receive on a one-year fixed-rate bond is around 1.9% (from the Islamic Bank of Britain), while the top-paying three-year fixed rate bonds – from Shawbrook Bank and State Bank of India – are paying around 2.5%.
