While the changes to stamp duty announced in yesterday’s Autumn Statement may have dominated news headlines, especially since they seem to favour first-time buyers, investors in the stock market also received some upbeat news flow, too.
The Chancellor announced that there will be a significant and immediate change to ISAs, in terms of how they are treated after their holder dies. Prior to the announcement, if a husband, wife or civil partner died, the value of their ISA was transferred to their widow/widower, but it lost its tax free status and no further contributions could be paid into it. This essentially meant that, prior to their partner’s death, a married couple/civil partnership could have two ISAs, which reduced to one upon the death of one of the couple.
From yesterday, however, when the holder of an ISA passes away, their ISA is kept intact and transferred to their husband, wife, or civil partner. It will keep its tax free status and, crucially, further contributions can be made into both ISAs up to the maximum allowance each year. This means that when someone becomes a widow/widower, they can maintain the tax-free status of both ISAs and continue contributing to both of them as they had done prior to their partner’s death.
It is estimated that the change will affect around 150,000 people per year and is great news for married couples and civil partners. That’s because it allows them to more easily plan for retirement, safe in the knowledge that they will continue to benefit from being able to pay upwards of £30,000 into their two ISAs even when one of the couple passes away. This should provide greater visibility in terms of their income in retirement, and make it much easier to plan for older age. Furthermore, the continuation of their tax free status should make it easier to grow the value of their ISAs over the long run, which again could mean a more prosperous retirement.
In addition, George Osborne also announced that the annual ISA allowance will be increased to £15,240 next year, with the rate of growth being heavily linked to inflation. While this may seem like only a negligible change, during the course of the current parliament the annual ISA allowance has more than doubled from £7,200 per annum in 2009/10, to £15,000 in the current financial year.
As a result of this higher allowance, and the new changes regarding tax free status upon death, ISAs appear to be an even more appealing way to invest for your retirement than ever before.