Largely unknown, yet widely available, the Additional Permitted Subscription (APS) is a highly beneficial allowance for surviving spouses or civil partners of ISA investors.
This legislation grants ISA holders the ability to pass the entire value of their ISA to their partner after death. Simply put, the Additional Permitted Subscription (APS) works in the form of a one-off increased ISA allowance which is on top of their own £20,000 annual ISA subscription.
Who is eligible for an APS?
A person is eligible for an APS if:
- Their spouse or civil partner died on or after 3 December 2014; and
- They were not estranged or separated from their spouse or civil partner
It is important to note that ISAs are only inheritance tax free when they are transferred to a spouse, as with all assets transferred to a surviving spouse
How does the APS work?
Anyone who was married or in a civil partnership with someone who died on or after 3 December 2014 can apply for an additional ISA allowance, known as the Additional Permitted Subscription (APS) based on the deceased’s ISA value.
If the deceased died before 6 April 2018, the APS is equal to the value of the ISA on the date of death. For example, if the deceased died on or after 3 December 2014 (but before 6 April 2018) with an ISA valued at £80,000, this would be their APS.
If the deceased died on or after 6 April 2018, their ISA would become a ‘continuing ISA’. It will keep this status until the earliest of:
- The completion of the administration of the estate
- The third anniversary of the date of death
- The closure of the ISA following withdrawal of all the funds
In this case, the APS is equal to the higher of the value of the ISA on the date of the investor’s death or the value of the ISA on the date it stops being a ‘continuing ISA’.
Where an investor held ISAs with several companies, a separate APS will be available for each.
Does the APS affect your ISA allowance for the current tax year?
The APS is separate from the ISA allowance. The surviving spouse or civil partner can use their ISA allowance in the normal way, in addition to any APS.
For example, if the deceased died on 4 February 2018 with an ISA valued at £80,000, they could contribute £100,000 (£80,000 plus £20,000) to their ISA in the tax year that they use the APS (see deadlines below) and protect their savings from income and capital gains tax.
What are the time limits to use the APS?
The APS can be made at any point from the date of death up to the time limits given below, depending on the form of the subscription.
- Where the survivor is the beneficiary of
the ISA assets, and they want to transfer these without the need to convert the asset to cash, the transfer from the deceased’s ISA must be completed within 180 days of the beneficial ownership passing to them. - For cash subscriptions the APS allowance must be used within three years from date of death, or if later than three years, within 180 days of the completion of the administration of the estate.
How do I contribute to an ISA and make use of an APS?
It is important to note that ISAs are only inheritance tax free when they are transferred to a spouse, as with all assets transferred to a surviving spouse.
ISAs are a tax efficient wrapper during an investor’s lifetime – with income and capital gains tax free growth. However, on death they are far less tax efficient. ISAs are fully liable to inheritance tax when passing to any beneficiary other than a surviving spouse, unless invested
in shares qualifying for Business Relief. This is something that can be commonly overlooked.