What Happens to Your ISA When You Die?

When an ISA holder dies, their ISA does not close immediately. Under HMRC rules, it becomes what is known as a 'continuing account of the deceased investor', more commonly called a continuing ISA. During this period, the account retains its tax-advantaged status: no income tax is payable on interest or dividends, and no capital gains tax applies to any growth.

No new money can be paid into a continuing ISA, but the investments or savings within it can remain in place and continue to accumulate returns on a tax-free basis. This continuing ISA status lasts until the earliest of: the completion of the administration of the deceased's estate, three years and one day after the date of death, or the closure of the account by the executor.

In practice, this means that during the often lengthy probate process, the tax benefits of the ISA are preserved. This can be particularly valuable for stocks and shares ISAs, where markets may fluctuate during the administration period.

When your estate is administered, the money in your ISA passes to your beneficiaries in line with your will (or, in the absence of a will, under the rules of intestacy). It is important to note that you cannot nominate a specific beneficiary directly on an ISA in the same way you can with a pension. The funds form part of your estate and are distributed accordingly.

Your executor has the power to manage the ISA during administration. The investment or cash can remain where it is until probate is complete, after which it is transferred to beneficiaries. Beneficiaries cannot simply take over your ISA in your name — they receive the funds, which they can then invest in their own ISA if they wish (subject to their own annual allowance or the APS, as explained below).

One of the most valuable provisions in ISA inheritance rules is the Additional Permitted Subscription (APS). This allows a surviving spouse or civil partner to claim an additional one-off ISA allowance equal to the total value of their deceased partner's ISAs at the date of death — in addition to their own annual ISA allowance.

This rule has applied since 3 December 2014. To be eligible, the deceased and surviving spouse or civil partner must have been living together at the date of death. Importantly, the APS is available even if the surviving spouse does not directly inherit the ISA assets — for example, if those assets were left to someone else in the will.

The APS allowance is separate from the standard annual ISA allowance of £20,000. So if your spouse died leaving ISAs worth £150,000, you could potentially subscribe up to £170,000 in ISAs in that year — your standard £20,000 allowance plus the £150,000 APS.

The APS is time-limited. You have three years from the date of your spouse or civil partner's death, or 180 days after the completion of the estate administration, whichever is later, to use the allowance. Once this window closes, it cannot be reinstated. It is therefore important to be aware of the deadline and to take steps promptly if you wish to make use of it.

For deaths on or after 6 April 2018, the APS amount is equal to the higher of the value of the ISA at the date of death or the value of the ISA at the time the continuing ISA ends. This means that if the investments have grown since the date of death, the APS amount could be higher than the balance on the day your partner died.

Unlike pensions (which are currently outside the estate for IHT purposes, though this is expected to change from April 2027), ISAs do form part of your estate for inheritance tax. If the total value of your estate — including ISA savings — exceeds the nil-rate band of £325,000 (and the residence nil-rate band of £175,000 where applicable), the portion above the threshold is taxed at 40%.

There is, however, an important exception. Assets passed to a spouse or civil partner are exempt from inheritance tax under the spousal exemption, regardless of value. So if you leave your ISA assets to your husband, wife or civil partner, no inheritance tax will be due on those assets.

If you are leaving ISA assets to children, grandchildren or other beneficiaries, the IHT treatment will depend on the overall size of your estate. This is one reason why ISA holders with larger estates may wish to consider other structures alongside holding cash or standard investments in an ISA.

Our article on Pensions and Inheritance Tax: What the 2027 Changes Mean for You explains how the 2027 changes will affect the IHT treatment of pensions — narrowing the distinction between pensions and ISAs for estate planning purposes.

If you are not married or in a civil partnership, your cohabiting partner is not entitled to the APS — however long you have lived together. This is one area where the law does not treat unmarried couples in the same way as married ones, and it can come as a surprise to those who have been together for many years.

In this situation, your ISA assets will pass according to your will (or intestacy rules), and your partner will have access only to their own annual ISA allowance. The continuing ISA rules will still apply — the tax benefits are preserved during administration — but there is no APS available to an unmarried partner.

If you are in a long-term cohabiting relationship and hold significant ISA assets, it may be worth considering your estate planning arrangements with a financial adviser or solicitor, particularly given the IHT implications.

For most people, ISAs will form part of a broader picture of wealth that includes property, pension funds, other savings and possibly business interests. An ISA is not a shelter from inheritance tax in the way that a pension currently is — though this distinction may narrow from April 2027 when unused pension funds are brought within the scope of IHT.

Reviewing your ISA as part of your overall estate plan — including whether your will is up to date, whether your spouse is aware of the APS rules, and whether the overall size of your estate may trigger an IHT liability — is a sensible step, particularly as your wealth grows. A regulated financial adviser can help you consider how your ISA fits within your wider estate planning strategy.

Our article on Estate Planning Explained provides a broader introduction to estate planning principles, including wills, trusts and inheritance tax considerations.