When you die, your ISA retains tax-free status during estate administration (up to three years) thanks to the "Continuing ISA" rules, and your surviving spouse or civil partner can inherit the value of your ISA allowance as an Additional Permitted Subscription (APS) on top of their normal £20,000. However, ISAs still form part of your estate for Inheritance Tax — unlike most pensions — which is an important planning consideration. This guide explains exactly what happens, who gets what, and the practical steps to take now so your family isn't caught out.

Quick Summary

  • Your ISA remains tax-free during estate administration (up to 3 years + 1 day) — a "Continuing ISA".
  • A surviving spouse/civil partner can claim an APS — an extra ISA allowance equal to the value of yours.
  • ISAs form part of your estate for Inheritance Tax — pensions usually don't.
  • Children can inherit the money but not the tax wrapper.
  • Without a will, the intestacy rules decide who gets what.

Step One: The Continuing ISA Status

Before April 2018, an ISA lost its tax-free status on the date of death. Any dividends or interest earned after that date were taxable even before the estate was settled — and probate can easily take 12 months.

Since 6 April 2018, ISAs automatically become Continuing ISAs on the holder's death. The account keeps its tax-free status until the earliest of:

  • The administration of the estate is completed
  • The ISA is closed by the executor
  • Three years and one day after the date of death

During this period, any dividends, interest and capital gains inside the ISA remain tax-free. The ISA provider will need a death certificate and usually a grant of probate to release funds. See HMRC's full guidance at gov.uk/individual-savings-accounts.

Step Two: Inheritance Tax on ISAs

This is the part that surprises most people. ISAs are not IHT-exempt. Unlike most defined-contribution pensions (which usually sit outside the estate), every pound in your ISA is added to your estate value for the IHT calculation.

Key numbers for the 2025/26 tax year (check gov.uk/inheritance-tax for the latest):

  • Nil-rate band: £325,000
  • Residence nil-rate band: up to £175,000 (if you leave your main home to direct descendants)
  • Spouse exemption: 100% — transfers between spouses/civil partners are IHT-free
  • IHT rate above allowances: 40% (or 36% if 10%+ of the estate is left to charity)

So if your ISA is worth £250,000 and your total estate (home, savings, investments) exceeds your combined nil-rate bands, a substantial portion of the ISA may be taxed at 40%. This is a big reason serious estate planners prefer pensions for long-term tax-advantaged wealth transfer.

Planning note: If IHT is a concern, compare an ISA with a SIPP/pension. Pensions are usually outside the estate and can pass to beneficiaries without IHT (rules due to change in April 2027 — check current guidance).

Step Three: The APS (Additional Permitted Subscription)

The APS is the big one. Since 2015, a surviving spouse or civil partner has been allowed to inherit the ISA wrapper value on top of their normal £20,000 annual allowance.

How the APS works

If your ISA was worth £180,000 on the date of death (or the date the account was closed, whichever is higher), your spouse gets a one-off extra ISA allowance of £180,000 — in addition to their own annual £20,000.

So in the same tax year they could legally pay in £200,000 of new money into ISAs. This is a huge tax benefit for couples.

APS deadlines

The APS must be used within specific windows:

  • Cash APS: Must be used within 3 years of the date of death, or 180 days after the estate administration completes — whichever is later.
  • In-specie APS (transferring actual investments rather than cash): 180 days after the estate administration completes.

APS claiming

The APS is not automatic. The surviving spouse must claim it — either with the same provider or with a different one. They can also split the APS across multiple providers. The ISA provider will ask for the death certificate, grant of probate and a completed APS declaration form.

Cash ISA vs Stocks & Shares ISA on Death

Both behave similarly under the Continuing ISA rules:

  • Cash ISAs: Interest continues to accrue tax-free during estate administration. The executor can transfer to a spouse's ISA using the APS.
  • Stocks & Shares ISAs: Dividends and growth remain tax-free. Investments can usually be transferred in-specie to the surviving spouse's ISA, keeping the portfolio intact.

With a Stocks & Shares ISA, in-specie transfer matters more — otherwise the executor may have to sell at a bad market moment. Check whether both the deceased's provider and the surviving spouse's provider support in-specie APS transfers before committing.

What If You're Not Married?

The APS is only available to spouses and civil partners. Long-term partners who are not legally married get no APS rights and no spouse-level IHT exemption. This is a significant disparity in UK law.

If you're in a long-term relationship but not married, two options to discuss with a solicitor and accountant:

  • Marriage or civil partnership — the simplest way to access APS and spouse IHT exemption
  • Life insurance written into trust — provides a tax-free lump sum to replace what would be lost to IHT

What Happens If You Don't Have a Will?

Without a will, the intestacy rules apply. In England and Wales the surviving spouse takes the first £322,000 plus personal possessions, with the rest split 50/50 between the spouse and children. Scotland and Northern Ireland have different rules.

Intestacy can disinherit unmarried partners entirely and force asset sales. If you have an ISA of any meaningful size, make a will — ideally using a qualified solicitor. See gov.uk/make-will for government guidance.

Practical Estate Planning Steps

1. Make a will (or update yours)

A will specifies who inherits your ISA and the rest of your estate. Without it, intestacy rules may not match your wishes. A simple will costs £100–£300 from a solicitor; free wills are available via some charities and over-55 schemes.

2. Keep a list of your ISAs

The multi-ISA rule since April 2024 means you may have several accounts. Executors can only access what they know exists. Keep a written (or encrypted password-manager) list of provider names, account references and approximate values. Tell your partner or executor where to find it.

3. Understand your IHT position

If your total estate — including property, ISAs, savings, pensions — is over your combined nil-rate bands, get an accountant or financial adviser to model IHT. The cheapest strategies are often the simplest: use the annual £3,000 gift allowance, make regular out-of-income gifts, and consider pensions as an alternative wrapper for part of your wealth.

4. Check your ISA provider's death-of-holder procedure

Some providers are faster and more helpful than others. If your main provider is notoriously slow (user reviews are informative), consider whether the convenience in life is worth the admin burden after death. Use our Compare page to explore options.

5. Consider pensions alongside ISAs

For IHT-sensitive estates, pensions have historically been more efficient (check current rules — IHT treatment is due to change from April 2027). A balanced mix of ISA + SIPP may give you both tax-free growth today and a smoother inheritance.

6. Get professional advice for meaningful estates

If your estate is anywhere near the nil-rate band (£325,000 solo, £650,000 couple, up to £1m with residence nil-rate band), seek a qualified solicitor and accountant. This article is general education only — estate planning decisions need regulated advice.

Worked Example: Married Couple, £250k ISA

Alex (married to Jordan) dies with a Stocks & Shares ISA worth £250,000. Their total estate is £800,000 including the family home left to their children.

  • Spouse exemption: Alex's ISA and assets can pass to Jordan IHT-free.
  • Jordan claims an APS of £250,000, allowing them to inherit Alex's ISA wrapper.
  • Jordan's own annual £20,000 allowance is unaffected.
  • When Jordan eventually dies, their estate will have a combined nil-rate band from both spouses (up to £1m with residence nil-rate band) to reduce IHT then.

This sequence preserves the maximum tax benefit and is typically smooth when a spouse survives.

Worked Example: Single Parent, £180k ISA, Two Children

Morgan, a single parent, dies with a Cash ISA worth £180,000. No spouse means no APS. Morgan's children inherit the £180,000 according to the will.

  • The ISA is added to Morgan's estate for IHT. If Morgan's total estate is under £325,000 (or £500,000 with residence nil-rate band when leaving home to children), no IHT is payable.
  • The children receive the cash but cannot use Morgan's ISA wrapper.
  • Each child could pay up to £20,000 into their own ISA per tax year to rebuild a tax-free pot.

Reading List

For general investing plus the thinking behind long-term wealth building, Smarter Investing by Tim Hale is a useful UK reference. Available on Amazon UK. Estate-specific planning books are best chosen with a solicitor.

FAQ

What happens to an ISA when the holder dies in the UK?

The ISA becomes a Continuing ISA and keeps tax-free status during estate administration (up to 3 years + 1 day). The value forms part of the estate for Inheritance Tax. A surviving spouse or civil partner can claim an Additional Permitted Subscription (APS) equal to the ISA's value.

What is the Additional Permitted Subscription (APS)?

The APS is an extra ISA allowance given to a surviving spouse or civil partner equal to the value of the deceased's ISA at death (or at closure, whichever is higher). It's in addition to the annual £20,000 and must be claimed within specific timeframes.

Are ISAs exempt from Inheritance Tax?

No. ISAs form part of your estate for IHT, unlike most pensions. If the total estate exceeds the combined nil-rate bands (£325,000 + possibly £175,000 residence nil-rate band), IHT may apply at 40% on the excess. Transfers between spouses are IHT-free.

How long does an ISA keep tax-free status after death?

Since April 2018, ISAs become Continuing ISAs automatically and keep tax-free status until the earliest of: estate administration completing, the ISA being closed, or three years and one day after death.

Can children inherit an ISA?

Children can inherit the monetary value via the will, but not the tax wrapper — only a surviving spouse or civil partner can claim an APS. Children can put inherited funds into their own ISA up to the annual £20,000 allowance.

⚠️ Not legal, tax or financial advice. Estate planning decisions are complex and fact-specific. This article provides educational background only. Always consult a qualified solicitor for will and probate matters and a regulated accountant or financial adviser for IHT and tax planning. Rules can change. Verify current guidance at gov.uk/inheritance-tax and gov.uk/individual-savings-accounts. Capital at risk on any investment product. Tax treatment depends on your individual circumstances.