What happens to my ISA when I die?

Individual Savings Accounts (ISAs) are a brilliant way to save and invest tax efficiently while you’re alive, but what happens to those savings and investments when you die? Can they be inherited by your loved ones and what are the tax implications? These are some very important questions when it comes to planning your estate and inheritance, and we can help to answer them.

So, what will happen to my ISA on death?

When you die, any savings and investments you’d held in an ISA will be passed onto the beneficiaries of your estate. That is anyone you’ve named in your Will to inherit your ISA - and this can be whoever you like.

But because it forms part of your estate, there’ll be unavoidable admin to work through before your ISA can be paid out. While this is happening, your ISA would become what’s known as a ‘continuing ISA’. This means no new payments can be made into it, but it’ll keep its tax benefits. So, there’ll be no tax to pay on any capital gains or income made in your ISA while your estate is being dealt with.

The account will continue like this until the first of the following events happens:

• It’s closed by your executor
• Your estate administration is completed
• Three years and one day pass after your death

What is inheritance tax?

Inheritance tax (IHT) is a tax paid when you inherit the estate of someone who has died, including property and money. The standard inheritance tax rate is set at 40% when the estate is valued over a certain threshold.

Are ISAs free from inheritance tax?

Inheritance tax on your ISA depends on who you leave it to and how much your total estate is worth. If you leave what's in your ISA to your spouse or civil partner, it won’t be subject to inheritance tax (IHT) because of what’s known as the ‘spousal exemption’.

However, ISA inheritance tax may be due if the assets are left to someone else. It’ll depend on the value of your estate and whether it’s worth more than the current inheritance tax threshold – which is currently set at £325,000.

Who can inherit an ISA?

The following recipients can inherit an ISA:

• A spouse
• A civil partner
• Or any other beneficiary named in a Will

Can you inherit an ISA from your parents?

Yes – if a parent dies and leaves money in an ISA, a child can inherit this money. However, it may be liable for inheritance tax, as the child doesn’t fit into the ‘spousal exemption’ rule explained above.

What types of ISA can be inherited?

Only the value of an ISA can be inherited by a beneficiary, not the actual account itself. This includes the following account types:

• Cash ISA
• Stocks and shares (investment) ISA
• Lifetime ISA
• Innovative Finance ISA

You cannot directly inherit a Junior ISA, as this account belongs to a child and is therefore considered part of their estate. However, if a child dies, any money within their Junior ISA would usually go to the child’s parents, as set out by inheritance law, or their spouse if they are over 16 and married.

Is there an inherited ISA allowance?

If you have a spouse or civil partner, on your death, they’ll inherit an additional ISA allowance, called the ‘additional permitted subscription’ or APS allowance. It means you can pass on not just the total wealth in your ISA(s) to them, but its tax-free status too.

Your spouse or civil partner will receive an additional permitted subscription for each ISA you have. This APS allowance is equal to the value of your ISA(s) on the day you die, or when it is closed (whichever is higher).

The tax-free inherited ISA allowance doesn’t apply to children that have inherited an ISA from their parents, nor does it apply to unmarried partners or other family members included in a Will.

How do additional permitted subscriptions (APS) work?

The APS allowance will be on top of your surviving spouse/civil partner’s own ISA allowance for the tax year (currently £20,000).

If they’ll inherit any of the cash or investments from your ISA they may be able to pay them into their own ISA to use the extra APS allowance. It’s also possible to use the APS allowance with their own cash, for example if you’re leaving some of the ISA cash and investments to someone else.

Does AJ Bell accept additional permitted subscriptions?

If you have an AJ Bell Stocks and shares ISA, your surviving spouse/civil partner can use their APS allowance with us, if they also have (or open) their own AJ Bell ISA. We don’t currently accept APS allowances from ISAs held with other providers.

Learn more about additional permitted subscriptions

How can I protect my ISA from inheritance tax?

1. Make a will

You can work out the rough value of your estate today by making a list of your assets – this includes your bank accounts, investments, ISAs and property as well as any debts and liabilities that could be deducted.

2. Transfer money to your spouse

Anything gifted to a spouse or civil partner in your lifetime or left to them after you die will be exempt from IHT. And your spouse will also inherit the value of your unused nil rate band, as well as any unused residence nil rate band

3. Use annual exemptions and allowances

There are gifts you can give each tax year that are exempt from IHT and reduce the value of your estate. The ‘annual exemption’ lets you give away a total of £3,000 each year, either to one person or split between several others. You can also give unlimited small gifts of up to £250 per person, if you haven’t used another gift to the same person.

4. Leave money to charity

Gifts you make in your lifetime to UK registered charities are free from IHT. This also applies to charity legacies you leave on death in your will. You can also reduce the overall rate of IHT that applies on your taxable estate if you leave at least 10% of what’s known as your ‘net estate’ to charity.

5. Get life insurance

Depending on cost, a simple way to plan is to take out life insurance to pay the inheritance tax bill, or to cover IHT that could become payable on large gifts for seven years. You should also review any life insurance you already have, particularly what your employer might provide. That’s because the payouts from policies will count as part of the estate unless your policy is written in trust.

ISA allowances 2023/24

The ISA allowance is the maximum you can put into your individual saving accounts per tax year.

More on ISA limits

Learn about our ISA

An AJ Bell Stocks and shares ISA is an easy, efficient way to invest. It’s tax free, so more of what you make stays in your pocket.

More on Stocks and shares ISAs