If you hold an ISA, the Additional Permitted Subscription (APS) is a very beneficial allowance which enables you to pass the entire value of your ISA to your spouse or civil partner after you have passed away.
As the APS works in the form of a one-off increased ISA allowance, on top of their own £20,000 annual ISA subscription, it can mean your beneficiaries receive much needed financial stability during what is often a difficult time.
However, according to ‘Moneywise’, the number of recorded APS allowance claims is surprisingly low with only 14% of eligible partners in the UK making use of their annual APS allowance in 2017-18.
Recent rule changes mean that APS subscriptions now have various time limits and may lose their tax efficiency if deferred for too long.
According to HMRC guidance, APS can be made at any date from the date of death up to the following time limits, depending on the type of subscription:
Where the survivor is the beneficiary of the ISA assets and wishes to transfer these without the need to convert the invested asset to cash (known as transferring in specie), the transfer from the deceased’s ISA must be completed within 180 days of the beneficial ownership passing to them.
For Cash ISA subscriptions, the APS allowance must be used within three years of the date of death or, if later than three years, within 180 days of the completion of the administration of the estate.
ISAs have always offered generous lifetime benefits, with income and capital gains tax free growth, but are far less tax efficient on death. As with all assets, it is important to remember that they are only inheritance tax free when being transferred to a surviving spouse or civil partner. However, ISAs holding Business Relief qualifying assets, such as AIM quoted companies, can benefit from full inheritance tax relief in addition to the ISA wrapper benefits provided they had been held for at least 2 years.