Did you know you can now inherit an ISA? From April this year, savers can pass on their ISA pot to their spouse without the savings losing their tax-free status.
It has been more than six years since the Bank of England cut base interest rate to just 0.5%, causing savings rates to plummet. Most affected by the fall in interest rates were the elderly – many of which relied on the interest rate on cash saving for their annual income.
Before the recession it was possible to lock up your money in a high street bank bond and earn up to 8% interest – now you would struggle to earn a quarter of that.
The new legislation to allows an individual to inherit a deceased spouses’ ISA without the money losing its tax-free status and without the lump sum affecting the surviving partner’s annual ISA allowance.
Kris Brewster, Skipton’s Head of Products, said: “New rules mean that if someone’s husband, wife or civil partner died on or after December 3 2014 and had savings in ISAs, people can still benefit from whatever they’d built up in tax-free entitlements, whether or not they inherited the actual funds themselves.”
Beneficiaries have three years to claim the savings, or 180 days after the administration of the estate is complete, whichever is later.
Finding the Best Paying Cash ISA
For those who have or are prepared to open a Nationwide Flex current account, the Nationwide Flexclusive ISA Issue 9 is paying a market leading 1.6% tax free, says Anna Bowes of SavingsChampion.co.uk. This is 0.1% better than the equivalent taxable easy access savings account from BM Savings, which is paying 1.5%.
But Bowes reveals that fixed rate ISAs do not fare as well against their taxable peers.
According to date from SavingsChampion.co.uk the best one year fixed rate ISA is from Nationwide paying 1.65% tax free compared to 2% for the best fixed rate bond from Charter Savings Bank and Punjab National Bank.
Over three years the best fixed rate ISA is from State Bank of India paying 2.1% or 2% at Nationwide compared to the three year taxable savings bond paying 2.55% from Punjab National Bank.
And over five years the best fixed rate ISA is paying 2.5% tax free is State Bank of India or 2.35% from Virgin Money compared to a 3.02% taxable savings bond from Vanquis Bank.
“At the moment, these tax free ISAs are still better than the net equivalent for tax payers, but in the new tax, presuming that the Personal Savings Allowance is introduced as planned, savers may prefer to ditch ISAs in favour of normal savings accounts,” says Bowes. “However, it’s important not to simply dismiss cash ISAs as they could prove to be a valuable additional tax free allowance in the future and as we know if the allowance is not used each tax year, it will be lost.”
