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What is an ISA additional permitted subscription (APS)?

There is now an additional ISA allowance available following the death of a spouse or civil partner. The Additional Permitted Subscription (APS) was introduced to allow a widow(er) to continue to benefit from tax free income and growth on an amount equal to the value of any ISA their deceased spouse/ civil partner held at the time of their death.

It's not the deceased’s ISA assets which are inherited but an additional ISA allowance equal to the value of the deceased’s ISA. This additional allowance is separate to, and independent of, the £20,000 annual ISA allowance.

Eligibility

An APS can only be claimed by the spouse or civil partner of an ISA holder who died on or after 3rd December 2014. Deaths that occurred prior to this date are not eligible.

To qualify, an individual had to be married or in a civil partnership with the person and crucially be living with them at the time of death.  The APS is not available to persons who were separated under a court order or deed of separation or separated under other circumstances that were likely to become permanent.

If either spouse or civil partner was living separately in a care home at the time of death, the APS remains available.

Time limits
The APS can be used in one go or as separate lump sums. It must be used within three years of the date of death, or within 180 days of the completion of the administration of the estate, whichever is later.

However, if the contributions are to be made ‘in-specie’ using the deceased’s ISA assets these can be paid no later than 180 days after the assets were distributed to the surviving spouse by the personal representatives.

Residency
Non UK Residents are generally not permitted to subscribe to an ISA. However non UK resident individuals can still apply for and use the APS.

Calculating the APS

There have been changes to how the APS is calculated following the introduction of 'continuing ISAs'.

Rules for death on or after 6 April 2018

From 6 April 2018, when the investor dies, their ISA becomes a ‘continuing ISA’. This change was introduced to prevent income and gains arising during the administration of the estate being taxable.

It is not possible to add new money to the continuing ISA, but it will retain its tax free status on income and gains.

A continuing ISA will last until the earliest of:

• the administration of the estate is complete
• the ISA is closed
• three years have passed since death

These changes also affect the APS ISA allowance that can be passed to the surviving spouse or civil partner.

From 6 April 2018, the APS is now the higher of:

• the value of the ISA(s) at the date of death
• the value of the ISA(s) at the date the ISA ceases to be a continuing ISA

Rules for death prior to 6 April 2018

When the rules were first introduced, the value of the APS was simply the date of death value of all ISA holdings of your late spouse or civil partner. This formed a fixed monetary amount which could be applied for.

The tax benefits associated with the ISA wrapper also ended on death. Consequently income and gains which arose from those assets during the administration period were subject to income tax and capital gains tax.

Claiming the APS

The process of claiming the APS begins with an application to the ISA manager chosen to accept the additional contributions. The selected ISA manager will then claim the APS on behalf of the surviving spouse by contacting the deceased’s ISA manager(s) to obtain the appropriate values.

An APS can be claimed from each provider if the deceased held ISAs with more than one manager.

Where the deceased held multiple ISAs with the same provider, the provider will issue one APS which covers the combined total of all their ISA holdings.

Using the APS

The APS is independent of the assets held within the ISA. Even if the assets aren’t inherited by the spouse or civil partner, they can still apply for the APS and make contributions from their own assets.

The surviving spouse will have a choice of where they wish to use the APS. It doesn’t have to be with the deceased’s ISA provider and it may be paid to the survivor’s own ISA or to a brand new ISA.

Also, it doesn’t have to mirror the type of ISA that the deceased held. If the original ISA was a Cash ISA, the APS could be used to fund a Stocks and Shares ISA for the survivor. An ISA opened solely to receive APS contributions won't fall foul of the more than ISA of each type per tax year rule.

However, the APS allowance must be used with the deceased’s provider if the existing assets are to be transferred ‘in-specie’ - without selling them - to the survivor’s ISA.

In-specie contributions can only be made to the provider who already holds the assets, so the survivor will need to open a new ISA if they don’t already have one with that provider. In-specie contributions have to be made within 180 days of the surviving spouse receiving the assets from the estate.

Multiple APS applications

The surviving spouse/civil partner can apply for an APS from each provider if the deceased held more than one ISA.  If all the ISAs are held with the same provider, one consolidated APS certificate will be issued.

Where there are multiple APS available, these can be:

• used separately with different providers for each; or
• used with a single provider who will combine them into a single APS.

Once some of the APS allowance has been used, it's not possible to pay any of that APS allowance to another provider. If the APS has been used in part with a provider, only that provider can receive the subsequent top ups.

Transferring an ISA which has received some of the APS will mean any unused APS is lost and future contributions are limited to the standard £20,000 ISA allowance.