08 December 2014
avers will be able to pass on their Isas as well as their pensions tax-free to loved ones after they die, the Chancellor
Savers will be able to pass on their Isas as well as their pensions tax-free to loved ones after they die, the Chancellor has announced.
George Osborne said that when someone dies, their spouse will be able to inherit their Isa and maintain its tax-free status.
Up until now, when a person dies the savings in their Isa lose their tax-free status and their spouse starts paying tax on that money.
The Government said 150,000 people a year lose out on the tax advantages of their partner's Isa after their partner's death, even if they were saving as a couple.
From today, if an Isa holder dies, they will be able to pass on their Isa benefits to their spouse or civil partner via an additional Isa allowance which they will be able to use from April 6 2015.
The surviving spouse or civil partner will be allowed to invest as much into their own Isa as their spouse used to have, in addition to their normal annual Isa limit.
Mr Osborne also said that next April the new annual Isa limit will be increased to £15,240, from its current level of £15,000 for the tax year 2014/15.
Isas have already been given a boost this year. As well as a large increase in the amount that can be saved tax-free, Isas have also become more flexible, allowing people to save all their allowance in cash, stocks and shares, or any combination of the two.
Mr Osborne also said that people who die before the age of 75 years old with a joint-life retirement annuity will also be able to pass that on tax-free.
From April 2015, beneficiaries of those who die under 75 with a joint-life or guaranteed term annuity will be able to receive any future payments from such policies tax-free. The tax rules will also be changed to allow joint life annuities to be passed on to any beneficiary.
The Government said the changes mean that people will no longer have to worry about their pension savings being taxed at 55% on death.
This builds on recently-announced changes set to happen from April 2015, to allow people to pass on their unused defined contribution (DC) pension savings to any nominated beneficiary when they die, instead of paying the 55% charge which currently applies.
If someone dies before age 75, the beneficiary will pay no tax on the funds. If they die after age 75, the beneficiary will pay their marginal rate of income tax, or 45% if the funds are taken as a lump sum payment.
From next April, a huge overhaul of the pensions landscape will take place generally, when people aged over 55 with a DC pension will be given much greater freedom and choice over how they cash it in. Free guidance will be offered to help people make the most of their money.
Pensions expert Ros Altmann said: "Anyone who has already bought joint-life annuity, which is a minority of people, but nevertheless significant, could be better off as a result of this change. The majority of past annuity purchases, however, were single life products which will not benefit.
"Most importantly though, these new rules, coupled with the new pension guidance, should help ensure more people cover their partner as well as themselves when buying a lifelong pension income."
David Fairs, a partner at KPMG, said: "The change in tax-free status on Isas and pensions will lead to radical thinking on how savings are drawn upon in the future.
"As the tax benefits under Isas can now be preserved after death, they are becoming as attractive as pensions. The result is that we have a genuine and real alternative to saving through a pension scheme."
The current account switching service, which was introduced in September last year helps current account customers to change banks and building societies more quickly and without the hassle of moving over all their existing payments themselves, is also being upgraded.
Under the current system, payments which went to someone's old bank account by mistake are automatically re-directed to the new one for 13 months. This will not be extended to 36 months.
The service will also include 99% of all SMEs (small and medium enterprises). These upgrades will be delivered by March 2015.
Mr Osborne has also asked the Financial Conduct Authority (FCA), to look into whether a five-day switching period would deliver significant benefits to consumers and to advise on this question before Budget 2015. The current service allows people to switch banks in seven working days.
Kevin Mountford, head of banking at MoneySuperMarket, said: " Reducing the switching limit from seven working days to five working days would be a positive move and will mean switching will actually take a week.
"While we are beginning to see a change in current account switching habits, with the current scheme having a positive impact on switching numbers, the Government clearly thinks that the seven day switching service hasn't gone far enough yet."Read More