Hidden Isa Allowance Can Help Grieving Spouses Save More

Savers may be unaware of an additional allowance that permits them to exceed the standard £20,000 annual Isa limit, known as the Additional Permitted Subscription (APS).

This allowance is specifically for grieving spouses or civil partners, enabling them to transfer the Isa holdings of their deceased partner into their own Isa wrappers, in addition to their personal £20,000 annual allowance. For example, if a partner held £50,000 in Isas, the surviving spouse can add this amount to an Isa in their name without affecting their own yearly limit.

To utilize the APS, individuals must first obtain a certificate from each of the deceased partner's Isa providers detailing the exact amount of the additional allowance. This certificate is crucial for opening a new cash Isa with either the original provider or a different one, provided they accept these subscriptions. However, not all providers accommodate APSs, and this information can be difficult to locate on their websites.

Rates for APS accounts can often be significantly lower than standard Isa rates, sometimes half of the 4% or more available on easy-access accounts. While it may seem simpler to remain with the original provider, especially during a period of bereavement, this can lead to a loss in potential returns if the Isa is with a major bank or building society.

Some institutions offer dedicated Isas for APSs, but these may come with poor interest rates. Others may only allow the funds to be deposited into their easy-access accounts. For instance, Nationwide requires APS funds to be placed in their Triple Access Isa, which pays 3.3% and limits withdrawals to three per year. After one year, the rate drops to its instant access cash Isa rate of just 1.1%.

Skipton offers its Legacy Isa at 2.05%, while Coventry provides an Additional Allowance Isa, also at 2.05%. Leeds Building Society does not accept APSs at all. Yorkshire Building Society, however, allows customers to choose from its easy-access and fixed-rate Isas, including an Easy Access Isa at 3.6% and a one-year fixed rate at 4.4%.

Among major banks, Lloyds, Halifax, Santander, HSBC, NatWest, and Barclays accept APSs into their easy-access accounts, though often with low rates. Lloyds' Cash Isa Saver offers the lowest at 0.75%, while HSBC's Loyalty Cash Isa offers the highest at 3%, contingent on holding an HSBC current account. Barclays and NatWest are options for those considering fixed-rate Isas.

For better rates on easy-access Isas, app-based providers like Trading 212 offer 4.61% for the first year, and Virgin Money's Double Take E Isa provides 4.15% with two withdrawals allowed annually. The National Savings & Investments Direct Isa offers 3.8%.

Once an APS has been deposited into an Isa, it becomes a standard cash Isa and can be transferred to other providers using the usual process. The Additional Permitted Subscription is provided to grieving spouses to cover the sum a spouse or civil partner held in Isa wrappers.