Additional Permitted Subscriptions (APS) for ISAs
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 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
How does the APS work?
In his 2014 Autumn Statement, the then Chancellor George Osborne outlined that anyone who was married or in a civil partnership with someone who died on or after 3 December 2014 could apply for an additional ISA allowance, known as the Additional Permitted Subscription (APS).
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 your client’s spouse 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 client’s 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 your client’s spouse 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 for the 2021/2022 tax year and protect their savings.
APS allowance claims surprisingly low
According to Zurich, as little as 14% of eligible partners in the UK made use of their annual APS allowance in 2017-18.
With nearly £70bn being sheltered by ISA investors the number of recorded APS claims remain surprisingly low.
There is a great opportunity for advisers to write business by touching base with clients that are either unaware of the APS allowance or have yet to seek proper financial advice about it.
However, under recent rule changes, APS subscriptions now have multiple time limits and can lose their tax efficiency if left for too long.
What are the time limits to use the APS?
According to HMRC, 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. This is something that can be commonly overlooked.
However, ISAs holding Business Relief qualifying assets, such as AiM-quoted
companies, can benefit from full inheritance tax relief in addition to ISA wrapper
This means that ISAs can be passed to beneficiaries entirely free from tax.
If you would like to find out more about how APS could work for your clients, visit our dedicated AiM ISA IHT Service page or contact a member of the Stellar team on 020 3195 3500.
Written by Jack Dobinson
Stellar Asset Management Limited does not offer investment or tax advice or make recommendations regarding investments. Prospective investors should ensure that they read the brochure and fully understand the risk factors before making any investment decision. The value of investments and the income from them may fall as well as rise and is not guaranteed. No assurance or guarantee is given that any targeted returns will be achieved. Forecasts of potential future results are not a reliable indicator of actual future results.
Stellar Asset Management Limited of 20 Chapel Street, Liverpool, L3 9AG is authorised and regulated by the Financial Conduct Authority.