What Happens to Your ISA When You Die? APS and IHT

Your ISA does not simply vanish or lose its tax shelter the moment you die. The rules changed for the better in 2018, and there is a valuable, often missed allowance that lets a surviving husband, wife or civil partner keep the tax-free wrapper around the money. But an ISA is not free from inheritance tax, and that is where most people are caught out. Here is what actually happens to your ISA when you die, in plain terms.

The wrapper does not close straight away

For anyone who died on or after 6 April 2018, an ISA becomes a “continuing ISA” (sometimes called a continuing account of a deceased investor). The investments stay inside the tax-free wrapper, so any interest, dividends or growth remain free of income tax and capital gains tax while the estate is sorted out.

This tax-free status lasts until the earliest of three points:

• the administration of the estate is complete,
• the account is closed because everything has been withdrawn, or
• three years after the date of death.

In practice that gives the executors up to three years and a day of continued tax-free treatment, which removes the old problem of tax suddenly biting while probate dragged on. No new money can be paid into a continuing ISA, and it does not count towards anyone else’s allowance.

The APS allowance: the part people miss

If you leave a surviving spouse or civil partner, they can claim an Additional Permitted Subscription, or APS. This is an extra one-off ISA allowance equal to the value of your ISA, and it sits on top of their own annual ISA allowance.

So if you die holding £60,000 in ISAs, your spouse gets an additional £60,000 of ISA allowance that year, plus their normal annual allowance. The APS is worked out as the higher of the value of your ISA at your date of death or its value when the account is closed or the estate is settled, which protects them if markets rise in between.

A few things worth knowing:

• The APS is available even if your spouse does not actually inherit the ISA money itself. It is an allowance, not the cash.
• They usually have three years from the date of death, or 180 days after the estate is administered if longer, to use it.
• They can use it with the same provider or, in many cases, move it to another. For the mechanics of shifting ISAs between providers, see our guide on how to transfer an ISA.
• Only a spouse or civil partner qualifies. Unmarried partners, children and other beneficiaries do not.

You can confirm the current rules on the government’s ISA rules after death page.

Inheritance tax: the catch

Here is the point that surprises people. The APS keeps the income-tax and capital-gains shelter alive, but it does nothing for inheritance tax. The value of your ISA is counted as part of your estate, and if the estate is large enough it can face inheritance tax at the usual rate above the nil-rate band, which is £325,000 per person.

There is one big exception, and it is the same one that applies to everything else you own: anything you leave to a spouse or civil partner is normally free of inheritance tax under the spouse exemption. So an ISA passing to a husband, wife or civil partner is usually IHT-free, while an ISA left to children or other relatives is added to the estate and may be taxed.

The old trick of holding AIM-listed shares inside an ISA to escape inheritance tax is also being cut back. From 6 April 2026, Business Property Relief on qualifying AIM shares falls from 100% to 50%, so those holdings will no longer be fully IHT-free even after the traditional two-year qualifying period.

What to do about it

• If you are married or in a civil partnership, make sure your survivor knows the APS exists and how to claim it, because providers do not always volunteer it.
• If you want money to reach children or others tax-efficiently, remember an ISA gives them no inheritance tax advantage, so a will and wider estate planning matter more than the wrapper.
• Keep a simple record of where your ISAs are held, so executors can act quickly within the three-year window.

Understanding the wrapper itself helps here. If you are still getting to grips with the basics, start with our explainer on ISAs explained for UK savers, and if you hold several accounts, see can you have multiple ISAs.

This article is general information, not personal financial or tax advice. Inheritance tax and ISA rules can change, and the right approach depends on your circumstances, so consider speaking to a qualified adviser.

Frequently asked questions

Does an ISA lose its tax-free status when you die? Not immediately. For deaths on or after 6 April 2018, the ISA becomes a continuing ISA and keeps its income-tax and capital-gains shelter until the estate is settled, the account is emptied, or three years pass, whichever comes first. No new money can be added during that time.

What is the APS allowance? The Additional Permitted Subscription is an extra ISA allowance given to a surviving spouse or civil partner, equal to the value of the deceased’s ISA. It is on top of their own annual allowance and lets them keep an equivalent sum inside a tax-free ISA. Only spouses and civil partners qualify.

Do you pay inheritance tax on an ISA? Yes, potentially. An ISA counts as part of your estate for inheritance tax. It is usually free of IHT if left to a spouse or civil partner under the spouse exemption, but if it passes to children or others, it is added to the estate and may be taxed above the £325,000 nil-rate band.

Can my children inherit my ISA tax-free? Children can inherit the money, but not the ISA tax wrapper, and there is no APS allowance for them. The ISA forms part of your estate for inheritance tax, so it is treated like any other asset you leave to non-spouse beneficiaries.

How long does a spouse have to use the APS allowance? Generally three years from the date of death, or 180 days after the administration of the estate is complete if that is later. It is worth claiming early, and confirming the exact deadline with the ISA provider, so the allowance is not lost.