Have you considered using your partner’s ISA allowance?

If you’re married or in a civil partnership you may be able to benefit from using your partner’s ISA allowance.

ISAs allow you to save up to £20,000 each year, giving you a combined savings allowance of £40,000 tax-free. Here are just a few ways you can take advantage of your ISA to save tax and reduce your tax liability.

‘Bed and Spouse’ or ‘Bed and ISA’

‘Bed and Spouse’ allows one spouse or civil partner to sell an asset, which the other spouse can buy back immediately. Capital Gains Tax (CGT) does not apply to assets you give or sell to your spouse, which means you will save CGT and the family will retain the asset.

‘Bed and ISA’ involves a spouse or civil partner selling an asset to save CGT, and the other spouse or civil partner immediately buying back the asset inside an ISA. This enables all future gains on the asset to be CGT free. The ideal time to do this is when investments have increased in value resulting in a large capital gain. In these instances, you can sell enough of the asset to realise £12,000 (the current CGT allowance) of the gain, and rebuy it back in your spouse’s name within the tax-free wrapper of the ISA. You will avoid paying tax because the realised capital gain is within your annual allowance.

Investments

Despite being able to have a joint bank account with your spouse or civil partner, you cannot hold an ISA in a joint name. However, some investment platforms, such as Stocks and Shares ISAs will allow you to add a family member who is then able to view your investments and deal on your account. You can always withdraw this permission at any time, you just need to be aware that this person will be able to buy and sell investments on your account whilst they have this permission.

Marriage Allowance

If you or your spouse earns less than the personal allowance, which is currently £12,000, and the other half earns the basic-rate of tax (less than £50,000), you may be eligible for a tax break.
The marriage allowance allows the lower earning partner to transfer their unused personal allowance to their spouse. This allows married couples to save up to £250 each year. Claims can also be back dated to 5 April 2015.

Can you inherit an ISA?

Money held in an ISA account remains tax-free when someone dies, so long as they pass it to their spouse or civil partner. This means it is not liable for inheritance, income or capital gains tax.

The surviving spouse will inherit the ISA through an ‘additional permitted subscription’, giving them a one-off additional ISA allowance that’s equivalent to the value of the deceased partner’s ISA when they died.

For example, if someone leaves £50,000, the surviving spouse will have their £20,000 ISA allowance plus an additional allowance of £50,000. Any growth on the deceased’s ISA will also be protected.

For further guidance on ISAs and tax-efficient ways to save or invest, contact our tax team.