A recent freedom of information (FoI) request submitted to HM Revenue and Customs, by Zurich, has found that the Additional Permitted Subscription allowance (APS) on ISAs is only used by about 13% of the UK’s grieving spouses per year.
In 2015, the government amended rules for married couples and civil partners, allowing them to possess an additional saving ISA allowance, up to the value of their deceased partner’s savings at the time of their death.
Under the tax-break legislation, if the deceased had savings of £40,000, the widow/widower could invest the amount, tax-free, in addition to their own £20,000 annual ISA allowance, diminishing any additional tax bills that may incur without the APS allowance.
According to the Tax Incentivized Savings Association, around 150,000 married couples that hold ISAs die each year. However, the FoI request found that only 21,000 recent widows or widowers had the understanding to claim their additional APS allowance in the 2017/18 financial year.
The statistics also highlight that the APS allowance has hid in unknown obscurity since its creation in 2015. During the 2015/16 financial year only 15,000 claims for APS were made.
Although 25,000 APS allowances were obtained in 2016/17, there is a still a significantly small percentage of married couples, with ISAs, taking advantage of the allowance. This means that a huge number of grieving spouses could be paying significantly more inheritance tax (IHT) than they should be.
Alistair Wilson, Zurich head of retail platform strategy, said: “Despite being in its fourth year, the take-up of this tax break looks shockingly low. People who miss out on the allowance will be hit by a tax bill that quickly eats into the returns on their savings and slows down the growth of their nest egg.”
Whilst this allowance may be widely known amongst specialists and estate planners, the figures suggest that the government have failed to adequately publicise the allowance to the general public. If all of the 150,000 grieving spouses are to benefit from the allowance, more needs to be done to highlight its existence and ensure that people do not overpay on their IHT contributions.
What should be done to increase the awareness of the APS allowance?
