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Top 5 ISA questions

5 minutes read
Last updated on 28th May 2020

ISAs were introduced on 6 April 1999, replacing Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs) - remember them? Despite their longevity (21 years) and simple tax-free premise, ISAs queries continue to arise thanks to those niggling quirks within the ISA rules. In no particular order, here are the top five queries we have encountered in recent months.

What happens to ISA tax advantages on death?

Where an investor dies after 5 April 2018, any ISA held will be designated a “continuing account of a deceased investor” and will remain so until the earlier of

  • The completion of the administration of the deceased’s estate.
  • The closure of the account.
  • The third anniversary of the death of the account investor.

No subscriptions, including replacement flexible subscriptions, can be made, however, active management of the investments already held within the account may continue subject to the Ts&Cs. The personal representatives cannot transfer the account to an alternative ISA manager.

Funds held within the account continue to benefit from ISA tax advantages and therefore personal representatives and beneficiaries do not face income tax or capital gains tax liabilities on investments retained in an ISA during the administration of the deceased’s estate.

How do the Additional Permitted Subscription (APS) rules work?

APSs are available on top of the annual subscription limit to the surviving spouse/civil partner of a deceased ISA holder. The deceased and the surviving spouse must have been ‘living together’ at the date of death.


  • Can be either the value of the deceased’s ISA at date of death or the point it ceases to be a continuing account of a deceased investor if the investor died after 5 April 2018.
  • Can be made with the manager who held the deceased's ISA or another manager who will accept.
  • Must be made within specific time limits.
  • Can be made in cash or inherited non-cash ISA assets.
  • Are available whether or not the surviving spouse/civil partner inherited the deceased's ISA assets.
  • Can be made by non-UK residents.
  • Cannot be made to (or from) a Junior ISA.
  • Can be made to a cash, stocks and shares, or an innovative finance ISA.
  • Can also be made to a Lifetime ISA if the investor is resident in the UK, but will count towards the Lifetime ISA payment limit.
  • Count as previous year subscriptions for all other ISA purposes.

An ISA opened solely to receive the APSs will not cause the investor to breach the one ISA of each type per tax year rule.

Is there anything I need to be mindful of regarding the ISA transfer rules?

It’s well known that investors can

  • Transfer their ISA from one provider to another at any time.
  • Transfer their savings to a different type of ISA or to the same type of ISA.

For those wanting to transfer money invested in an ISA during the current tax year, they must transfer all of it. For money invested in previous tax years, investors can choose to transfer all or part of their savings.

Points to be aware of?

  • Not all ISA providers will allow part transfers - check with the provider.
  • It’s possible to transfer Lifetime ISAs to other types of ISAs - these transfers are treated as a withdrawal from the Lifetime ISA and are subject to a withdrawal charge unless: 
    • The transfer happens after the investor’s 60th birthday
    • The investor has declared that they have a terminal illness

The withdrawal charge has been temporarily reduced from 25% to 20% due to COVID-19.  The reduction will apply until 11.59pm Monday 5 April 2021.

What happens if an ISA investor becomes non-UK tax resident?

The client should inform the ISA provider as soon as UK tax resident status ceases.

ISAs can be retained, but eligibility to further subscribe requires the investor to be UK resident (unless the overseas Crown employee rules apply). Crown employees serving overseas (typically serving members of the armed forces and diplomats), or people married to or in a civil partnership with a Crown employee serving overseas, can open and subscribe to an ISA in the usual way.

Those who become tax resident in another country should remember that the tax advantages of an ISA apply only to UK tax. As there could be a tax liability in the country of residence, appropriate advice should be taken.

Are ISAs protected under the Financial Services Compensation Scheme (FSCS)?

The FSCS will look at the underlying investment itself rather than the wrapper it is held in, to determine whether compensation is due.

Cash ISAs that are provided by authorised deposit-takers are likely to qualify as protected deposits, allowing the FSCS to pay compensation if the deposit-taker fails. The compensation limit is up to £85,000

If the ISA simply comprises a life insurance policy and the insurer is unable to meet its financial obligations for this product - deemed to be a long term insurance product – investors may be eligible to receive compensation for 100% of the claim with no upper limit.

If the underlying investment comprises shares in an OEIC, the compensation limit is up to £85,000.

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