Treatment of SIPP and ISA on death

[EssDeeAitch]

Can anyone let me know how does the transfer of SIPP and ISA holdings get treated upon death of a spouse when there is a valid will and all assets have been left to the surviving spouse?

Do the funds have to be cashed in and the money transferred, or the funds get transferred to the new owner within/without the SIPP or ISA?

Thanks in advance.

[swill453]

SIPPs and ISAs are treated very different on death. The SIPP won't go through the will at all, and will go to whoever was nominated at the pension provider by the deceased to receive it. There are tax issues, mostly beneficial to the recipient(s).

The ISA will go through the will. There is a way for the spouse to keep it within an ISA but I'm not familiar with the details.

Scott.

[Dod101]

Nowadays the surviving spouse can get the benefit of the ISA in the estate of the deceased. He/she can open a new one on the strength of that, preserving the tax b enefits of the deceased and then it depends I think on the ISA manager but most will do the transfer in specie so that you do not have to buy and sell with all the expense and market risk that that entails.

As for a SIPP that is quite different and assuming that the letter of wishes nominates the surviving spouse, then it is most likely that the SIP trustees will pass it on to the spouse in accord with that letter. They then can withdraw cash in the usual way and whether or not they need to pay tax on the withdrawals depends on the age of the deceased spouse at death. Under 75, and the withdrawals are free of tax, 75 or over, and the survivor pays tax at their marginal rate on any withdrawals.

That is my understanding anyway and I know that the ISA bit works having taken advantage of it myself.

Dod

[fisher]

There is some information here regarding APS (additional permitted subscriptions) which is the extra ISA allowance that becomes available to a spouse on the death of their spouse.

https://www.gov.uk/government/publicati ... a-investor

[Dod101]

swill453 is correct with almost all SIPPs. I was asked to check with my SIPP manager though because apparently not all SIPPs are dependent on the pension rules. If they do not fall under the pension rules then they form part of the estate and will be included for IHT (and will not get any of the benefits to the beneficiaries of the usual SIPP) I would advise anyone to check with their SIPP provider and ensure that they have given a letter of wishes to them as to where the SIPP should go in the event of the holder's death.

As for the ASP, my wife died three years ago and this benefit had not long been introduced so in effect I had to educate the ISA provider but I think now most will be familiar with the benefit and how to handle it. What is being transferred is the additional allowance equal to the value of the ISA at date of death, not the assets within it although as I said an ISA provider might well be prepared to transfer those in specie if requested. They are though subject to IHT if the estate is large enough.

Dod

[DrBunsenHoneydew]

When the Executor tries to get the cash (or shares) from the ISA, the Provider will generally spontaneously ask whether they want it transferred as a Spousal ISA or in plain unwrapped shares or sold for cash.

Transfer to spouse is of course exempt from IHT, but on the standard IHT forms you'd have to both list it as the deceased's asset and claim it as an exemption from tax.

[EssDeeAitch]

Many thanks to all - very helpful indeed. I have been in touch with my SIPP/ISA provider to get the pieces put into place.