ISAs and estate planning

ISAs

ISAs have traditionally been seen as a foundation for good financial planning because of their general tax efficiency.  However, they have had a negative effect on estate planning because they form part of the deceased’s estate for inheritance tax (IHT) purposes. 

Two recent changes could make ISAs more useful for estate planning.

A spouse or civil partner can now effectively inherit a deceased person’s ISA savings. This is helpful for general tax planning but on its own it will not save IHT, because this tax would normally only be charged when the survivor eventually dies.

More important, ISAs can benefit from business property relief (BPR) to the extent that they are invested in qualifying AIM (Alternative Investment Market) stocks. Once you have owned BPR-qualifying shares for at least two years, you can pass them on death free from IHT. AIM stocks are generally much higher risk that a typical stocks and shares ISA portfolio. But the higher risk needs to be considered against a potential loss of 40% IHT (for those with larger estates).

 

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

 

 

 

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The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.