ISAs offer tax benefits including tax-free income and growth, but they are not exempt from Inheritance Tax. An ISA forms part of your estate on death. This may come as a surprise to many investors as recent research found over half (51%) of over 45s do not know that ISAs are liable for Inheritance Tax (source: Canada Life).
There is currently £585 billion invested in ISAs. ISAs like other investments and possessions can be passed to a spouse or civil partner tax-free. However, if passed to any other beneficiary, including children, they will be liable to IHT if the total value of the estate is over £350,000 (the IHT Nil Rate Band). In the last budget HM Treasury predicted it would raise £5.3bn in IHT in 2017/18, increasing to £6.5bn by 2022/23.
In many cases IHT is avoidable but IHT rules are complicated. Despite the fact that some investors have significant amounts in their ISAs, only a minority seek advice on IHT planning. This means their beneficiaries may inherit less than expected.
If the value of your estate, including ISAs, exceeds the Nil Rate Band early preparation is key to minimising your IHT bill. For personalised advice contact Richard Higgs CFP FPFS on 0117 966 5699 or email@example.com.