Executors need to be aware of new rules relating to Individual Savings Accounts (ISAs). The rules were published in November 2017, but they will come into force on the 6th of April 2019. As from that date any investments that are held in an ISA wrapper will not have an income tax or capital gains tax (CGT) charge during the period of the administration of the estate of the deceased. Alternatively, the period of exemption will be 3 years from the date of death if the administration of the estate takes longer than that.
At the moment, ISA wrappers are only tax-free whilst the account holder is alive. They lose their tax-free status on death so any gains after death will be liable to CGT.
This is going to make estate administration much easier. Executors will not have to include these ISAs in their income tax declarations and beneficiaries won’t have to make a claim for a tax refund. Altogether it is a good thing and simplifies the administration of ISAs within a deceased estate.
This also has an impact on the estate administration if the tax-free status of the ISAs on the estate means that it will not be considered a “complex estate”. If the estate is not considered a complex estate then the executor does not have to submit a self-assessment tax return. They can pay income tax informally. It also has an impact in respect of the new disclosure of tax avoidance schemes (DOTAS) rules. Executors will not have to put details of the estate on the new trusts register under the DOTAS rules.
An estate will qualify as a complex estate if any of the following applies:
- a) the value of the estate is more than £2.5m
- b) the tax for the administration period is £10,000 or less
- c) any assets sold do not exceed £500,000 (£250,000 for deaths before April 2016)
If you are the executor of an estate and you’re not sure how this applies to the estate you’re dealing with or if the estate qualifies as a complex estate, get in touch and we will see how we can help you.