Individual Savings Accounts (ISAs) are like the foundation of good financial planning because they can help you save on taxes.
However, ISAs can create a challenge when it comes to planning what happens to your money after you pass away. This is because when someone dies, the ISAs they had become a part of their overall assets, and this can lead to having to pay inheritance tax.
But there have been two recent changes that might make ISAs more useful for planning what happens to your money after you’re gone.
- Firstly, if your husband, wife, or civil partner passes away, they can now inherit your ISA savings without having to pay a lot of taxes. This is good for planning how to save on taxes in general, but it doesn’t completely solve the inheritance tax issue, because that tax usually only comes into play when the surviving partner eventually passes away.
- Secondly, here’s where it gets a bit more interesting: if your ISAs include investments in certain types of riskier companies listed on something called the Alternative Investment Market (AIM), they can qualify for something called business property relief (BPR). This means that if you’ve owned these types of investments for at least two years, they can be passed on to your heirs without them having to pay inheritance tax on them.
It’s worth noting that AIM stocks, which are the investments in these riskier companies, are generally more risky compared to the typical investments in ISAs. But the extra risk might be worth it, especially when you consider that by investing in them, you might avoid a 40% inheritance tax that would otherwise apply if you have a lot of valuable things to leave behind.
If you want help with figuring out how to manage your taxes or investments, feel free to get in touch with us.
Please Note: How much you benefit from these tax rules depends on your personal situation, and tax laws can change over time. Also, it’s important to know that the organization that oversees financial matters doesn’t regulate advice specifically about taxes.