9 in 10 bereaved savers miss out on tax breaks

aLMOSt nine in ten eligible bereaved savers are missing out on a vital tax break, Money Mail can reveal.

When a spouse or civil partner dies you can claim an extra Isa allowance so you can inherit their savings tax-free. the extra allowance is equal to the amount in the Isa at the time of death.

When the allowance was announced in December 2014, HM revenue & Customs said approximately 150,000 married Isa holders die a year, so their spouse could benefit. the number could be higher because it has no figures for the number of civil partners affected.

Yet a Freedom of Information request from Money Mail reveals that in the 31 months between December 3, 2014, and July this year, as few as 39,000 accounts have been reported open.

During that time an estimated 387,000 should have been eligible, indicating that only around one in ten people is claiming.

the response from HMrC warns that the taxman does not hold information from all Isa providers, so the number of claimants may be higher. Nevertheless, it suggests tens of thousands are missing out.

the allowance was introduced in recognition of the fact that many couples save from joint income, and to help bereaved individuals secure their financial future and enjoy the tax advantages they previously shared.

Older women are expected to benefit most from the new rules, which the Government estimated at the time would cost £5 million a year in lost tax revenue, rising to £10 million next year.

Savers who used their full cash Isa allowance since they were introduced will have built up more than £100,000 in their accounts, even before interest is added in.

their surviving partner can carry on earning tax-free interest on this money. they can claim an extra tax- free Isa allowance if their spouse or civil partner died on, or after, December 3, 2014.

In practice, if your partner saved, say, £25,000 in their Isa, you can put this additional subscription into an Isa in your name. the extra comes on top of your usual Isa allowance — £20,000 for this tax year.

Money Mail has received a stream of letters from elderly savers who have battled for months for the tax break on these inherited Isas. Our investigation in august found the bereaved were routinely given the runaround by High Street banks. Staff in some major banks are so poorly trained they had no idea the Isa inheritance rules even existed. Solicitors for the Elderly says the forms you have to fill in are too complex and a lot of vulnerable people cannot cope. It also says providers make mistakes because the bank’s head office knows the procedure but not all branch staff do. You can’t just transfer the account into your name. the provider has to close your late partner’s account, check you are entitled to the allowance and open an account for you. You must use your allowance within three years from the date of death — or 180 days from the completion of the administration of the estate, if that comes later. You don’t have to wait until you have obtained probate to claim the allowance.