The individual savings account, as you know, is merely a wrapper that could shield investments in stocks and shares on the one hand, and cash on the other, from tax. Many say that the average person does not earn enough from such investments as to be liable to tax on the proceeds of such savings. The truth to such comments notwithstanding, that is the style of utterance of members of a book club who’ve not read the book under consideration.
A more serious consideration is the proliferation of items of distortion of our system. Such distortions of the our system of levying and assessing taxes are so violent as to result in perverse incentives – true as that may be, it is a tale for another time.
Since April 2015, anyone with an ISA could bequeath it to their spouse or civil partner – free of all taxes. Previously, when an ISA investor died, the ISA wrapper died with the investor, so that the cash, funds or other investments, if they were maintained, became liable to income and capital gains tax.
Now however, the surviving spouse can inherit the tax advantage as what is know as an APS (Additional Permitted Subscription) ISA. By this dance, the surviving partner may pay in an additional one-off lump sum into their ISA account, which is equivalent to the ISA balances of their deceased person.
The Treasury believes 150,000 eligible ISA investors die every year, with the loss of their tax advantages. As there are several ISA millionaires in the land, the retention of this tax advantage by the survivor is not small thing.
For the sake of completeness, the tax advantages of an ISA may only be passed to a spouse or civil partner; on the death of the second partner the tax wrapper dies, end of.