The masses of ISA savers will welcome George Osborne sounding the death knell on saversí spouses having to pay tax on any returns on their partnerís savings upon their passing.
Currently, when an individual dies the ISAís tax-free condition perishes along with them, and their partner or dependents are forced into paying tax on any returns they wish to access from the ISA.
Instead, effective immediately, widows and widowers can enjoy the full amount of their deceased companionís ISAs without having to worry about burdening their own pockets with hefty tax payments. Osborne made the announcement in his Autumn Statement on Wednesday, as part of a sweeping set of reforms focussed on inspiring greater levels of confidence amongst savers not seen since before the financial crisis.
The Chancellor also noted that any widowed individual whose partner dies before the age of 75 will be able to access any remainder of an annuity due to them completely tax-free, as Osborne seeks to impress upon the public his enduring commitment to improving the state of saving in todayís climate.
In his budget earlier this year, Osborne underlined his pledge to ìback a Britain that savesî, by virtually trebling the amount savers can place into ISAs to £15,000, and also reforming tax regulations so that individuals with an income under £15,500 are not subject to being taxed on their savings.
Osborne has increased the maximum ISA limit even further in his Autumn Statement, from £15,000 to £15,240 in line with inflation.
As for Osborneís ostensibly greater commitment to combining peer-peer lending and ISAs expressed in his Budget, this did not transpire in the Autumn Statement, with the Chancellor only remarking that there would be a greater government focus on peer-peer lending through the opening up of credit barriers that currently inhibit small businesses.
The Treasury said: "150,000 married ISA savers pass away each year, and their ISA tax advantages die with them, even if they were saving as a couple. Autumn Statement announces that from 3 December 2014, if an ISA saver in a marriage or civil partnership dies, their spouse or civil partner will inherit their Isa tax advantages.
"From 6 April 2015, surviving spouses will be able to invest as much into their own ISA as their spouse used to have, on top of their usual allowance, and so will be better able to secure their financial future and enjoy the tax advantages they previously shared."
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."
Darius McDermott, managing director of Chelsea Financial Services, said: 'This announcement will come as a big relief to the older generation of ISA clients who tend to take income from their ISA portfolio.
'The surviving spouse can now continue to enjoy this income tax free. This is even more important at a time when bank deposit rates are at record lows and finding high-yielding investments has become more difficult.'
Greater flexibility has long been desired by ISA savers, and Osborneís announcement will be music to the ears of ageing couples peeved at the prospect of having fresh tax obligations upon the death of a spouse.
Tisa operations director Carol Knight, lauded the impact of Osborneís changes for women, stating: ìAllowing the transfer of ISA assets to spouses and civil partners on death provides a fairer outcome, especially for women in retirement, and is one we have long advocated.
ìOften a wife or civil partner will have savings in a husbandís name and can lose out significantly from the current rules. Allowing ISA savings to be transferable without leaving the ISA wrapper will enhance the greater flexibility introduced earlier in the year and act as a further incentive to save in ISAs.î
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