ISA and Probate

[Oliver Hardy]

Mum passed away three and a half years ago and getting probate was a nightmare. She had a couple of ISAs one with Hargreaves Lansdown. I let them know when mum died, the advisor told me to get back to them when probate came through. Three and a half years later the ISA had gone up quite a bit, but when I received the statement of closed account Hargreaves Lansdown quoted a closing figure at time of death???

Anyone know if this is the case and iof so who gets the interest, surely it does not belong to Hargreaves Lansdown, does it?

Advice appreciated!

[alscar]

Afaik ISA providers can close the account 3 years and a day after a death but until then the ISA remains "open " and frozen in terms of no money can be paid in but the existing money can obviously accumulate more due to interest and or capital growth if invested in Stocks and Shares.
Any interest earned between the date of death and closure belongs to said ISA and should be paid out to you as Executor.
It certainly doesn't belong to HL.
I would go back to them and if still no joy email their complaints dept.

[Backtothenorth]

I can't believe grant of probate has taken so long OH, you poor thing ! Once it came through for my MIL we sent it to HL and asked them to liquidate the portfolio. We also sent them a form, which they provide, giving beneficiaries of the Estate although in this case it was the law firm dealing with the process.. HL, from my experience, have an efficient team dealing with all this. The beneficiaries in the Will will receive the updated value of the portfolio on liquidation.

[Backtothenorth]

alscar said:

Afaik ISA providers can close the account 3 years and a day after a death but until then the ISA remains "open " and frozen in terms of no money can be paid in but the existing money can obviously accumulate more due to interest and or capital growth if invested in Stocks and Shares.
Any interest earned between the date of death and closure belongs to said ISA and should be paid out to you as Executor.
It certainly doesn't belong to HL.
I would go back to them and if still no joy email their complaints dept.

Thanks for this, wasn't aware of the 3 year rule.

[Panamax]

Yes, an ISA remains an ISA (i.e. free from all income tax and CGT) for up to three years after death. From that date forward any further income and gains will become subject to tax in the hands of the executors.

I am sure HL are fully up to speed and simply answering the question executors will usually ask, i.e. what was the value at death. Very obviously the executors should have continued receiving the deceased's quarterly statements either on paper or online. If the deceased was never online and if paper statements ceased on death (which seems unlikely) then you just need to speak with HL and ask them how to move forwards. They are very good at "customer facing" stuff and it should all be straightforward.

[Panamax]

IHT is calculated on the value at date of death.

[alscar]

Panamax said:

Yes, an ISA remains an ISA (i.e. free from all income tax and CGT) for up to three years after death. From that date forward any further income and gains will become subject to tax in the hands of the executors.

Am I right in thinking that should the deceased individual also have had non ISA stocks then CGT tax is potentially payable from the date of death until they are sold even though IHT might already have been paid as part of probate ?

[Mogul]

3.5yrs to obtain probate sounds painful.

As above, a Continuing ISA can run for 3 years and 1 day, following which, it is presumably just converted into a regular GIA...

It may not be relevant in your case but the APS rules are quite generous if there is a surviving spouse (but not sure if they would lose out if probate took >3years as that may be beyond the cut-off).

The Bestinvest notes on this topic are quire good…

https://www.bestinvest.co.uk/isas-explained/what-h...

Edited by Mogul on Thursday 28th November 21:25

[Panamax]

alscar said:

Am I right in thinking that should the deceased individual also have had non ISA stocks then CGT tax is potentially payable from the date of death until they are sold even though IHT might already have been paid as part of probate ?

Yes, and it includes any increase in value of the deceased's home even it was previously their CGT free main residence. On the other hand if shares or are house are left directly to beneficiaries (i.e. without needing to be sold) the beneficiaries' "acquisition cost" (or base value) for CGT purposes will be just the probate value. Nothing can be transferred directly to a beneficiary from an ISA; the contents of the ISA must first be sold to cash, which may trigger a CGT liability if more than 3 years have elapsed.

[alscar]

Panamax said:

alscar said:

Am I right in thinking that should the deceased individual also have had non ISA stocks then CGT tax is potentially payable from the date of death until they are sold even though IHT might already have been paid as part of probate ?

Yes, and it includes any increase in value of the deceased's home even it was previously their CGT free main residence. On the other hand if shares or are house are left directly to beneficiaries (i.e. without needing to be sold) the beneficiaries' "acquisition cost" (or base value) for CGT purposes will be just the probate value. Nothing can be transferred directly to a beneficiary from an ISA; the contents of the ISA must first be sold to cash, which may trigger a CGT liability if more than 3 years have elapsed.

Thanks for confirming.

[Jon39]

Oliver Hardy said:

Mum passed away three and a half years ago and getting probate was a nightmare. ...

Sorry to here that.

One aspect that worries me, is an executor having to pay IHT within 6 months of the date of death.
I understand that the granting of probate, often now take a long time.
There might be sufficient cash within the estate, but the executor cannot touch it.

Did you perhaps encounter this difficult situation?
What happens?

[Jon39]

Panamax said:

Nothing can be transferred directly to a beneficiary from an ISA; the contents of the ISA must first be sold to cash, which may trigger a CGT liability if more than 3 years have elapsed.

I was under the impression that if a S&S ISA is being left to a husband or wife beneficiary, the tax free status can continue.
Is that still the position?

[WrekinCrew]

Jon39 said:

I was under the impression that if a S&S ISA is being left to a husband or wife beneficiary, the tax free status can continue.
Is that still the position?

AIUI the survivor inherits the allowance. The ISA itself is closed but the spouse can reinvest the sum in a new ISA even if they've used their allowance for the year. (Applies to both S&S and cash ISAs)

[Panamax]

Jon39 said:

I was under the impression that if a S&S ISA is being left to a husband or wife beneficiary, the tax free status can continue. Is that still the position?

Yes, the UK tax system has a broad approach of no IHT between spouses and the ISA situation fits that picture. Other beneficiaries are treated differently, as above, with ISA forming part of the taxable estate.

[The Leaper]

Jon39 said:

Sorry to here that.

One aspect that worries me, is an executor having to pay IHT within 6 months of the date of death.
I understand that the granting of probate, often now take a long time.
There might be sufficient cash within the estate, but the executor cannot touch it.

Did you perhaps encounter this difficult situation?
What happens?

I assume that you are currently an executor dealing with a deceased's estate.

I have been an executor several times (several years since the last time, although I have suddenly found myself in the position of executor once again!). The Probate Office's performance has been getting much worse over the years and typically it can take over 6 months from submitting an application to getting probate. The problem you set out is a common one, and you start getting charged interest if you have not paid the IHT by the end of the 6th month from the date of death. This can lead to potential beneficiaries, especially charities, complaining about late payment, interest payments etc.

What I have done in the past is open two accounts at the deceased's bank. One is used to receive minor reimbursements such as overpaid utility bills, incoming payments such as share dividends and the like, and later on all the deceased's assets once probate is obtained, and then you can make a distribution as per the will. The other is used to make any payments before probate is obtained eg funeral and wake costs, IHT, any administration costs, and because these can be substantial amounts you need to set up a loan facility with this account. Eventually, you settle everything, prepare formal estate accounts, and then close these two bank accounts.

BTW, from my experience as an executor with charities involved, my advice is to not disclose the potential payment to them until as late as possible. I've always found that once they know something is coming their way they contact you and chase for payment incessantly, often using surprising unpleasant and inappropriate language. My view of charities is, in general, unfavorable based on these experiences.

R.

[Happy Jim]

Jon39 said:

Oliver Hardy said:

Mum passed away three and a half years ago and getting probate was a nightmare. ...

Sorry to here that.

One aspect that worries me, is an executor having to pay IHT within 6 months of the date of death.
I understand that the granting of probate, often now take a long time.
There might be sufficient cash within the estate, but the executor cannot touch it.

Did you perhaps encounter this difficult situation?
What happens?

That happened to me last year, plenty of funds in the estate but probate not granted - submitted the IHT form (pre probate submission) and nominated a Nationwide account (of my fathers) to provide the funds - zero fuss or hassle, HMRC just pulled the funds directly.

Regards
Jim

[Oliver Hardy]

Jon39 said:

Oliver Hardy said:

Mum passed away three and a half years ago and getting probate was a nightmare. ...

Sorry to here that.

One aspect that worries me, is an executor having to pay IHT within 6 months of the date of death.
I understand that the granting of probate, often now take a long time.
There might be sufficient cash within the estate, but the executor cannot touch it.

Did you perhaps encounter this difficult situation?
What happens?

Thanks for everyones advice.

What happened. Probate office wanted some tax forms filled out, tax office kept telling me there was no need. I would send stuff off and not hear from them for months, I would email them but get no reply, I would phone, take forever to get through and would be told I was fast tracked or it was being delt with. I phoned them late September, was told I had to sign a declaration and the lady would send it that afternoon, which never arrived, I phoned them a few weeks later and was told it was being processed. I was just about to go and see a lawyer when the granted probate papers arrived.

[Mogul]

Panamax said:

Nothing can be transferred directly to a beneficiary from an ISA; the contents of the ISA must first be sold to cash.

I just asked ii about this and they told me that they could handle an in-specie transfer.

I didn't inquire further, but I guess it might be easier for them (ii) to move securities from the deceased's ii ISA to an ii account in the beneficiary's name (avoiding transferring out to a 3rd pty platform). Have assumed that this would also include an “APS” transfer - from the deceased’s ISA to the surviving spouse’s ISA.

Edited by Mogul on Wednesday 4th December 12:15

[WrekinCrew]

You might not want to exceed the FSCS compensation limit of £85K per bank. Two people with £80K each were fully protected but one person with £160K is potentially at risk after you combine accounts.

[WrekinCrew]

Hmmm this is a bit of a minefield.

It seems you can only move the deceased person's ISA funds into a dedicated APS ISA, which pays well under the rate of most easy access ISAs.
Not only that but HMRC rules say you can't later move the APS ISA into a "normal" ISA*
Finally many banks / BS's don't offer APS ISAs at all, or will only accept internal transfers from their own existing ISAs.

• or maybe you can. Contradictory claims out there ...

Edited by WrekinCrew on Tuesday 10th December 16:27