Individual Savings Accounts (ISAs) for managers: closing an ISA
Guidance for ISA managers on closing an account, including who can close an account, when and how.
Closing an account
Both ISA managers or investors can close an account.
Investors can request you close their account at any time but the reason must be included in the ISA manager’s terms and conditions.
You can either:
- leave the account open until all tax is paid
- close the account and pay any tax using their own resources income
You can also accept and close an account from third parties, but you must make sure that the request is valid.
You can close an account due to:
- your terms and conditions, for example, if the balance falls below a certain amount
- bankruptcy of an investor
- death of an investor
- the investment being invalid and where it can’t be repaired - it must be voided
When an investor is declared bankrupt, the trustee will notify you to close the account with effect from the date the trustee was appointed.
Death of an investor
An ISA ends on the death of an investor.
The account can stay open, removing the ISA status, or the balance could be transferred to another account. This would depend on the terms and conditions of the ISA.
The account must be closed after notification of the investor’s death.
If the account stays open any interest, dividends or gains that are paid after the date of death aren’t exempt from tax.
If interest is paid and you have claimed the tax, you must repay the tax to HM Revenue and Customs (HMRC) and account for it in your next claim.
If the interest is paid gross, you need to tell the personal representatives that they must account for any tax that may be due.
Interest on ISA life insurance policies
A life insurance policy within an ISA will pay out on the death of the investor. Any interest paid by the insurer because of a delay in paying the claim isn’t exempt from tax and the personal representatives must be notified that the interest is taxable.
Interest on cash on deposit
Interest on cash on deposit paid or credited by you after the date of death isn’t exempt from Income Tax.
Interest paid or credited before 6 April 2016
You should deduct tax at the basic rate where appropriate and account for the tax due by including it on your next CT61 return form, or deducting the tax from the next claim made. If returns or claims are not being made, send a cheque to HMRC.
Interest paid or credited after 6 April 2016
There is no requirement to deduct Income Tax from interest paid or credited on or after 6 April 2016.
You may split interest paid after the date of death into interest received:
- up to and including the date of death, not liable for Income Tax
- from the date of death, which isn’t exempt from Income Tax
Interest on ISA investments
Interest paid, after the date of death, on an ISA investment, for example, from a corporate bond, isn’t exempt from Income Tax and isn’t apportioned.
If you’ve received a payment and reclaimed tax that has already been deducted, you must repay the tax to HMRC.
If the payment is received gross, you don’t need to take action other than advising the personal representatives that they must account for any tax that may be due.
Information to be given to personal representatives
You need to give a statement to the personal representative showing:
- the market value of the investments (not including insurance policies) in the ISA at the date of death
- the value of the Cash ISA at the date of death, include gross interest payable up to date of death
- the original cost price and date of any investments purchased after the date of death
- details of any income received after the date of death - include the payment date
- the date of disposal and the amount of the net sale proceeds received for each disposal made after the date of death
- form R185
- any statement of interest
You should let the personal representative know that the:
- investments can be transferred to them, or a beneficiary or be sold and the proceeds go to them
- non-Cash ISA assets inherited by a spouse or civil partner can only be used to make additional permitted subscriptions for:
- non-Innovative Finance ISA assets - the title to the assets stays with you or your nominee
- Innovative Finance ISA assets - peer-to-peer loan agreements have been managed by you at all times
Reopening closed accounts
You can reopen an account if it was closed in the same tax year and the investor wants to restart or make flexible ISA replacement subscriptions.
All subscriptions made in that tax year must be reported on the Annual Return of Information Form.
Information about Income Tax.