In the final instalment of our 'Investments Beyond Life' series, we focus on General Investment Accounts (GIAs). A GIA is a type of account that allows you to invest in a wide range of assets such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Unlike ISAs or pensions, GIAs don't come with tax-free status, meaning any income or capital gains generated are subject to taxation.
GIAs are frequently used to hold a diverse range of investments outside of tax-advantaged structures, providing both flexibility and potential growth. However, it's crucial to understand what becomes of your GIA after you pass away.
TAX IMPLICATIONS
When the holder of a GIA dies, several tax implications come into play, which can significantly impact the estate and beneficiaries.
Capital Gains Tax (CGT)
Any realised profit within a GIA is subject to CGT. If, for example, £100,000 was invested within a GIA and it grew to £150,000 at which point the investor sold the assets, the £50,000 (£150,000 – £100,000) profit they have made at the point of sale will be subject to CGT.
Upon the death of the account holder, any capital gains accrued on OEICs and Unit Trusts are effectively 'wiped out' for CGT purposes. This means that the beneficiaries who inherit these investments won't be liable for CGT on any gains that occurred before the death of the account holder. Continuing from the previous example, if an investor invested £100,000 in a GIA and investments grew to £150,000 and then they passed away, there would not be any CGT to pay.
The base cost of the holding (i.e. the purchase price) will reset to £150,000 which means that the beneficiary of the GIA would only need to pay CGT on any realised gain. It is therefore important to note that if the underlying investments grow in the period between the investors' death and probate being granted which can take several months and the investments are enchased during this period, there would be a CGT liability.
Income Tax
Any income that has arisen before the date of death but not yet paid out will be treated as income of the deceased and may be subject to Income Tax. Income arising after the date of death will belong to the beneficiary(ies) of the estate which the executers would need to settle during the administration period.
Inheritance Tax (IHT)
The value of the GIA, including OEICs and Unit Trusts, will form part of the deceased's estate for IHT purposes.
JOINT ACCOUNTS
In the event of first death, any jointly owned GIAs will automatically transfer to the surviving owner without realising a gain or triggering CGT. The acquisition cost of the inherited investments from the deceased will be based on the amount the surviving investor receives.
For example, if James and Samantha jointly invested £100,000 in a GIA and then James passed away when the portfolio size was £140,000. If Samantha sells the investments, the acquisition cost would be £120,000. This is made up of 50% of the original investment (i.e. the £50,000 that she invested herself) + the amount she inherited (50% of £140,000).
With regards to IHT, the value of the deceased's share of the asset will be included in their estate for IHT. No IHT will be payable if the joint owners are married or in a civil partnership as the transfer will be covered by the spousal exemption.
SUMMARY
In summary, upon the death of the account holder, the investments in OEICs and Unit Trusts held within a GIA are subject to specific tax rules. The capital gains accrued prior to death are 'wiped out', income may be taxable, and the value of the investments is included in the estate for IHT purposes. The investments will continue to be held and their value can go down as well as up. The executers or the beneficiaries can sell these holdings and gains incurred during the administration period would be taxable.
How Can We Help?
Handling General Investment Accounts (GIAs) after the account holder's death involves several important steps and tax considerations. Therefore, it's always advisable to consult with a tax advisor or financial planner for personalised advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.