One of George Osborne’s surprise announcements in last December’s Autumn Statement was that ISAs would become inheritable by surviving spouses and civil partners. As pension funds can now pass down through generations, the ISA move was a logical step. It was also one of those measures which all Chancellors like – a change which sounds very beneficial, but with little cost.
The announcement initially caused some confusion because it appeared almost to have been as unexpected to HMRC as anyone else. Eventually some clarity emerged and in the early part of 2015 HMRC issued draft regulations. Two points stood out:
Fortunately the second point was changed as a result of responses to the draft, although sadly the awkward “at death” contribution basis remains. Legislation was passed by the last parliament in its dying days and came into force on 6 April 2015 (for deaths on or after 3 December 2014).
Inheritability adds to the appeal of ISAs and further complicates the ‘Pension versus ISA’ debate. If you can afford it, from an estate planning viewpoint it may now be better to draw retirement income from your ISAs and leave your pensions to accumulate untouched outside the IHT net.
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