Following on from the ground- breaking changes to personal and other defined-contribution pensions announced in the March 2014 Budget, the Chancellor’s Autumn Statement sought to level the playing field by further increasing the tax benefits attaching to ISAs.
The so-called ‘death tax’ on pension benefits having been abolished, the tax benefits of ISAs can now be passed on to spouses and civil partners regardless of the age at which the ISA holder might die.
Previously, the value of the deceased’s ISAs would have passed to the surviving spouse without suffering inheritance tax, but the ISA
0.5 investments would have ceased to enjoy the valuable reliefs from income tax and capital gains tax.
As from 6 April 2015, however, the surviving spouse will receive a one-off additional ISA allowance equal to the accumulated value of all the deceased’s ISA savings (though on the death of the surviving spouse the whole value of their own and their inherited ISAs will be subject to inheritance tax).
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.
In addition, as from 6 April 2015 the ISA allowance will be increased from £15,000 p.a. to £15,240 p.a.
Important though these concessions are, the tax relief on pension contributions still makes pensions the superior savings vehicle, though pension benefits cannot be accessed until age 55, whereas ISAs can be sold at any time.