Whilst ISAs are very tax efficient during your lifetime, the situation may change on death due to the potential impact of tax
Isas are one of the most useful tools in any saver’s arsenal, offering a range of tax-efficiency benefits as you go about building up your money.
“Utilising Isas is one of the easiest ways of sheltering your investment growth and income from the taxman and can go a long way in preserving and growing your wealth,” says Shaun Robson, head of wealth planning at Killik & Co.But even Isas are not immune from the taxman. When you die, the money in the account will count towards your overall estate value.
And if that total surpasses the inheritance tax threshold, your executors will have to pay tax on it.Here we explain what happens to your Isa after death, and the ways in which savings can be passed on free from inheritance tax.As soon as you die, new contributions to an Isa are no longer allowed. However, the funds in there still have the opportunity to grow, and they can continue to do so without becoming subject to income tax or capital gains tax.
The Isa is either closed by your executor or when the administration of your estate is over. If neither of these happen within three years of your death, then the account provider will close it.Are Isas subject to inheritance tax?“Whilst Isas are very tax efficient during your lifetime, the situation may change on death due to the potential impact of inheritance tax,” Mr Robson explains.
If your estate, including your Isas, exceeds the current threshold of £325,000, then inheritance tax of 40 per cent will be due on anything over this amount.
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