The current APS rules have been around since 2018, yet they are still widely misunderstood. With the help of Tom Archer APFS, Tax and Trust Specialist, Quilter, this article looks at some of the more common myths and where paraplanners need to take care.
Additional Permitted Subscriptions (APS) are an important part of ISA planning on death.
Broadly, when an ISA holder dies, their surviving spouse or civil partner may be entitled to an extra ISA subscription allowance based on the value of the deceased’s ISA holdings, on top of their normal annual allowance.
This enables them to maintain existing tax-efficient savings, without compromising their own ISA allowance.
Myth 1: The spouse inherits the ISA itself
Not quite. The rules give the spouse or civil partner the right to make an additional subscription to their own ISA, based on the value of the deceased’s ISA. It does not mean they automatically inherit the deceased’s ISA.
Example: Derek has stated in his will that all his investments, including a stocks and shares ISA, are to be divided equally between his four children.
Despite this, his widow, Janet, can still make an additional subscription to her own ISA, but will need to use her own money to do so.
Myth 2: Any beneficiary can claim APS
APS is only available to a surviving spouse or civil partner who was living with the deceased at the date of death. It does not apply to children, cohabitees or other beneficiaries.
Myth 3: APS is always based on the value at death
This was generally true under the original APS rules, but the position changed for deaths on or after 6 April 2018. In these cases, the deceased’s ISA can continue for a limited period as a continuing account of the deceased.
This means the ISA can keep its income tax and CGT advantages after death until it is closed. As a result, the APS may be based on the value of the ISA when it is closed, rather than its value at the date of death.
However, if the value at death is higher, that higher figure can still be used.
Myth 4: There is no time limit
Where the APS is being used by making a subscription in cash, this must be done within three years of death, or within 180 days of completion of the estate’s administration, if later.
This does not mean the APS has to be used for a cash ISA – it means the subscription is being made using cash rather than by transferring investments in-specie.
Where the APS is being used by transferring investments in-specie, rather than by making a cash subscription, it must be completed within 180 days of the surviving spouse or civil partner becoming beneficially entitled to the assets.
Myth 5: APS cannot be used if the ISA has already closed
It is common for the deceased’s legal personal representatives to close the ISA shortly after death. This does not prevent the surviving spouse or civil partner from using APS within the three-year time limit.
It does, however, fix the APS amount. The allowance will be based on the value of the ISA when it was closed, or the value at the date of death if that is higher.
Myth 6: APS must be with the same ISA provider
Where the APS is used by making a cash subscription, this can be done with any ISA provider. In practice, the chosen provider will usually need to contact the provider of the deceased’s ISA to confirm the APS limit.
The surviving spouse or civil partner can then subscribe to an ISA of their choice using cash.
Where the APS is used by transferring investments in-specie, this must initially be done with the existing provider. A standard ISA transfer to another provider may then be possible afterwards.
Key points
APS is a powerful, straightforward option for bereaved spouses and civil partners, but myths have added unnecessary complexity, especially the belief that the survivor must inherit the ISA directly.
In reality, even if the ISA is closed or assets are distributed, the surviving spouse or civil partner can still use APS within set time limits. Understanding these subtleties is key to making the most of APS opportunities.
To view more eligibility options for an APS, check our guide here.
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