Before APS existed, widows and widowers lost the ISA wrapper on inherited savings. Even if their partner had spent years carefully building tax‑efficient investments, the surviving spouse had to move the money out therefore losing all the associated tax benefits.
APS changed that.
When my client’s wife passed away, he became entitled to an Additional Permitted Subscription on top of his own annual ISA allowance. The APS equals the higher of the ISA’s value at the date of death or its value when the account stops being a “continuing account of a deceased investor” (for example, when the estate is completed or the account is closed). This is how, in many cases, the surviving spouse can keep the full value of the late spouse’s ISA within an ISA wrapper.
For my client this meant:
1. No loss of tax efficiency
Instead of losing the tax benefits of his wife’s ISA, he received an APS allowance, which let him add an amount equal to the value of her ISA into his own ISA on top of his usual annual limit. This means the money can stay invested within an ISA wrapper, where any future interest, dividends or investment growth continues to be protected from tax. Something that wouldn’t be the case if the funds were simply held as cash outside an ISA.
2. Continued income tax protection
At his stage of life, the last thing my client needed was increased taxable income. Had he simply received the money into a current account, the interest alone could have pushed him into a higher tax bill. Keeping the funds inside the ISA prevented that.
3. Flexibility for future needs
For older clients, liquidity is always a consideration. In some cases, converting investments to a cash ISA can be appropriate. But in my client’s case, the portfolio had always been invested, and he didn’t need the cash immediately. We kept it invested with the option to convert to cash later if circumstances changed.
