Bringing the ISA additional permitted subscription back to life
In the last month I have received a number of queries from financial advisers on the subject of the ISA additional permitted subscription (APS).
The APS has been available since 6 April 2015 and allows the surviving spouse or civil partner of an individual who dies, entitlement to an APS which is equal to the value of the deceased individual’s ISA savings at the date of their death, or, from 6 April 2018, the date on which the account ceases to be a continuing deceased’s account; whichever is the higher value.
Now, it had been some time since I have had to deal with enquiries on this subject and I have to confess to refreshing my memory by hitting our reference library. On reflection, I was surprised that queries on the generous tax planning opportunity created by APS were so rare. What I did not realise was how poor the take up of the APS was.
At the beginning of January it was revealed through a Freedom of Information request that only 21,000 people have made use of APSs since its inception. Considering the Tax Incentivised Savings Association’s estimate that 150,000 married ISA holders die a year, the take up rate is astonishingly low.
So are there any obvious reasons for the poor take up?
According to HMRC’s statistics the number of individuals subscribing to ISAs has been in steady decline peaking at 15.2m in 2010/11 and estimated to be as low as 10.8m in 2017/18, a 29% reduction in 7 years. The fall has been driven by fewer individuals contributing to cash ISAs. There is no doubt that the introduction of the personal savings allowance in April 2016 and the poor rates of interest being offered make ISA’s unattractive for many. So using the APS may simply be of no appeal to some savers. However, it never fails to astound me that I can get an interest rate three times higher on my current account as I can on my cash ISA, both of which are provided by the same bank. Even ignoring the personal savings allowance, the return from my current account after tax is still considerably better.
Perhaps a bigger problem is that for individuals who are not advised they are simply not aware of the availability of the APS or how it actually works.
For example, the ability to make use of the APS does not have to relate to the need to transfer the cash or stocks and shares from the deceased’s ISA to the surviving spouse or civil partner. One of the questions raised with me was where the deceased had created and left his full estate to an immediate post death interest trust in his will. It came as a surprise to the surviving spouse that she could still use all, or part, of the APS generated by her late husband when funding an ISA from her own savings.
One simple solution would be for ISA providers to be more proactive on this subject. As part of their correspondence in dealing with a deceased’s ISA, providers could provide clear information on the availability of the APS and provide guidance as to how it operates. A small step that could make a big difference and even help retain business.
Something that is even more fundamental that may also help is changing the name of the APS. Something along the lines of the ‘transferable ISA allowance’ gives a clearer indication of what it actually achieves. Let’s be honest, if I had not stuck ISA in the title how many of you would have gone on to read this?
According to HMRC stats, the greatest numbers of savers are over the age of 65 and have the highest average savings in ISAs. The ability to claim the APS on the death of a spouse or civil partner should not be overlooked. However for those who do not have advisers more work needs to be done in making sure they are made aware of the opportunity and do not miss out. Without action the APS will continue to flop.
This article first appeared on Professional Adviser