The number of people inheriting ISAs is climbing quickly with investment provider Hargreaves Lansdown reporting that the number on its platform doing so has risen a third in a year (33%) and more than two thirds in two years (68%).
People can inherit ISAs through the additional permitted subscription rule, which was introduced in April 2015.
HL data shows that when clients inherit investments in this way, half of them (48%) don’t make any changes to their portfolio within the first year.
However 15% make their first trade within two weeks of inheriting, around one in seven.
The additional permitted subscription means that anyone holding cash or stocks and shares who leaves savings and investments to a spouse or civil partner, passes on their ISA allowance to them too.
The additional permitted subscription is equal to the value of the ISA on the date of death or the value of those assets once probate is completed – whichever is higher.
It means a spouse or civil partner who is left assets that used to be in an ISA could potentially wrap everything back up in the allowance, without using up their usual annual allowance. Even if they were not left the ISA, they can claim the additional permitted subscription and use it to wrap around other assets.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Rising awareness of the additional permitted subscription means more people are taking advantage every year. These inherited allowances aren’t always well understood, but can be incredibly valuable – potentially protecting tens of thousands of pounds inherited from a spouse from tax.”
She said that in around one in seven cases, almost as soon as the beneficiary was in the driving seat, they made changes within the first fortnight.
“This can make perfect sense if they have different objectives to their late spouse, or their circumstances have changed significantly enough to mean a different kind of investment portfolio is more suitable,” she said.
But she warned of the risk that, “people who inherited investments might not be as familiar with them as their spouse and sell because they don’t have the confidence to hold them. This can have unforeseen and damaging consequences.”
Of the around half of people are still holding exactly the same portfolio as their spouse had, Ms Coles said it can be a sensible approach, especially where a couple have planned together, and built a portfolio that meets both their needs.
“However, there remains a risk that some of these investors haven’t made a change because they don’t feel they understand enough, or because they feel their spouse would want them to stick with them,” she said.
She said in many cases, the surviving spouse could benefit from financial advice.
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