In a time when interest rates on savings are low and stock markets can be difficult to predict the tax relief of an ISA is an attractive and sensible way to ensure your money works as hard as it can for you. We are at the time of the year when banks, investment managers and financial advisers will be telling us to use our ISA allowances before the tax year ticks over and the opportunity is lost. But after an announcement in its Autumn Statement last year the Government has released draft legislation which may offer increased advantages to ISAs for those who are married.

During the lifetime of an individual, income and gains generated on assets held within an ISA are free of tax, and for those who have used their ISA allowances diligently over the years this means quite significant tax savings. But the ISA “wrapper” is lost upon death, and with it the tax advantages. The proposal under the new regulations is that where the first death in a married couple or civil partnership occurs after 6 April 2015 the survivor will be able to apply for an ISA allowance equivalent to that which their other half enjoyed before they died. There are also transitional rules for those who have died since 3 December 2014 but before the regulations come into force to enable their widows and widowers to benefit in a similar way.

Individuals whose spouse had funds in a cash ISA will be able to apply to increase their ISA allowance in the tax year of death by an amount equal to the value of their other half’s ISA at the time of death.  Where there were stocks and shares in an ISA then the increased ISA allowance will be the equivalent of the value of those investments at the time the survivor applies for the increased allowance.

The draft regulations contained detailed conditions that must be satisfied to claim the increased allowance, but broadly speaking these are that the ISA must continue to be managed by the same account manager as the deceased, and that the couple must have been living together at the time of death. For tax purposes this means that a married couple must not have been legally separated or factually separated and heading towards legal separation.

Interestingly there is a distinction between cash and stocks and shares ISAs. The survivor does not have to have inherited the deceased’s cash ISA to claim the allowance, meaning that the deceased’s will could leave the funds to a child or elsewhere while the spouse could still benefit from the allowance. But the survivor must have inherited a stocks and shares ISA to enable them to benefit from the increased allowance. A curious, but important difference.

By their nature the draft regulations that have been published are not free of complications or questions, but it looks likely that for those who are unfortunate to lose loved ones there might be a silver lining on their fiscal horizon.