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The ‘Additional Permitted Subscription’: The little-known tax allowance

APS tax allowance

The Individual Savings Account (ISA) tax-efficient benefits have made it one of the most popular ways to save and invest. But research indicates that thousands of people are missing out on an additional allowance when their spouse or civil partner passes away.

The little known Additional Permitted Subscription (APS) tax allowance could save you money. Yet, findings suggest that it’s not something many of those entitled to it are taking advantage of. It could mean they’re losing valuable returns on the savings their partner has left and the opportunity to grow savings or investments tax efficiently.

What is the APS?

Since 2015, married couples and civil partners have been entitled to an extra ISA allowance when their partner dies.

The current ISA subscription limit is £20,000 annually. APS entitles you to extra ISA allowance equal to the value of the ISA held by your deceased partner at the time of their death. This applies even if you don’t inherit the cash or assets held in the ISA. Thanks to the tax-efficient benefits that ISAs offer, this additional allowance can be valuable and help you make the most of inheritance and your existing wealth.

For example, if your partner had £50,000 in an ISA when they passed away, you would be able to save or invest £50,000 tax-efficiently on top of your standard ISA subscription. This would take your total allowance for the year to £70,000. With 22.1 million people saving and investing through ISA accounts, it’s an allowance that many grieving spouses or civil partners are likely to be able to take advantage of.

The time limit for using this tax allowance is usually three years from the date that your partner died for a Cash ISA and within 180 days of the distribution of the assets to you if the deceased’s ISA accounts was a stocks and shares one.

An underused tax allowance

Despite the benefits of increasing your ISA allowance, research from Zurich suggests many people aren’t using their available APS.

A Freedom of Information request to HM Revenue and Customs (HMRC) suggests just 14%, or 21,000 people, took advantage of the rules in 2017/18. In contrast, it’s estimated that 150,000 married ISA holders pass away annually. As a result, tens of thousands of people may be missing out on increasing their ISA allowance based on their partner’s savings.

According to the data obtained, 15,000 people took advantage of APS in 2015/16, adding £635 million to their savings. This increased to 25,000 people in 2016/17, who inherited £1.1 billion, before falling to 21,000 people the following year, with savers sheltering the same amount thanks to inheriting larger sums on average.

Last year the average value of an inherited ISA was £55,000, a figure that’s gradually increasing. If you inherited this amount and didn’t take advantage of APS, you’d pay £110 annually in tax unnecessarily, assuming you’re a basic rate taxpayer that has already used your personal savings allowance. For higher rate taxpayers, the potential gains through APS may be even greater.

Alistair Wilson, Zurich’s Head of Retail Platform Strategy, commented: “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.”

Using your APS allowance

If eligible, you can use your APS to either make a cash contribution to your ISA, either with your own cash or money inherited from your partner. If your partner’s ISA was invested, the investments can be directly transferred to your ISA if it’s with the same company without needing to be sold. Should investment values fall between the time of your partner’s death and the transfer occurring, you can contribute cash to reach the APS limit.

If your ISA is with a different provider than that of your partner’s, you can usually transfer your APS. However, you should check that your ISA provider accepts APS transfers.

Financial planning after a loss

After losing your partner, money may be the last thing on your mind. However, you may be faced with complex financial decisions and wondering how you should proceed. Seeking the support of a financial planner can help give you a sense of security and confidence in your plans as you move forward.

Whether you want to understand if you’re entitled to APS and how to use this or how the passing of your loved one affects your annual income, financial planning can provide clarity. If you’d like help understanding the tax allowances you could benefit from, please contact us. We’re here to offer support through difficult times, moving at a pace you’re comfortable with.

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