Surviving spouses can inherit their deceased partner's ISA, and it will stay as an ISA, so they won't pay tax on any gains, Chancellor George Osborne has announced.

Currently if someone passes away, their surviving husband, wife or civil partner inherits their ISA savings but it loses its tax-free status. The change is effective immediately on both cash and stocks & shares ISAs, and applies to anyone who passes away from today.

Quite simply, any money you inherit this way will be in addition to any ISA allowance you have. This does not apply to common-law partners.

The ISA cash will not count towards the value of the deceased person's estate (which is the value of everything they own, including property and cash in the bank) to calculate inheritance tax. Inheritance tax is charged at 40% on anything above £325,000 in someone's estate.

According to the Treasury, 150,000 people per year lose out on the tax advantages of their partner's ISA when their partner passes away.

ISA allowance increases

Osborne also today revealed that the ISA allowance will rise from £15,000 to £15,240 from April 2015, as expected.

Junior ISA and Child Trust Fund limits will also both increase from £4,000 to £4,080.