What happens to my ISA when I die?

In this article we look at what happens to your ISA on death. New rules came into force in April 2018 and we explain how this impacts you and your ISA. We also explain what happens if you have a surviving spouse as well as what happens to your ISA if you don't.

What happens to your ISA if you have a surviving spouse or civil partner

When you die, your surviving spouse or civil partner will automatically inherit a one-off additional ISA allowance, provided they were living with you and not legally separated at the time of your death. The allowance that they will inherit is either the value of your ISA upon your death or when it is closed (whichever is higher). Your spouse or civil partner's own ISA allowance will be unaffected by this one-off additional allowance, known as the Additional Permitted Subscription (APS). If you have multiple ISAs with different providers, your spouse will receive a separate APS allowance for each provider.

On 6th April 2018, new rules came into force meaning that when you die, your ISA can continue to benefit from tax-free status and continue to grow, tax-free for up to three years and one day while the estate is being administered. This is known as a 'continuing ISA' and is a welcome rule change, given that prior rules meant that the value of the ISA was frozen at the time of death, meaning any growth during the probate process was taxable. This does not apply to Junior ISAs.

The additional one-off ISA allowance can be used by the surviving spouse, regardless of whether they are the intended recipient of the assets. For example, even if the money is left to another family member (ie not the deceased person's spouse) the spouse is fully entitled to benefit from an increased allowance equal to the total value of the ISA. They would however have to fund it themselves should they wish to take advantage of the increased allowance.

What happens to a Stocks and Shares ISA when you die?

If you have a Stocks and Shares ISA, your executor will be able to instruct your ISA provider to do one of the following:

• Sell the investments in order to pay the cash proceeds to either the administrator or your beneficiary
• The investments within the ISA can be transferred without being sold. This is known as an 'in specie' transfer. This option is generally only available to a surviving spouse or civil partner and must be completed with the same ISA provider (they can later choose to transfer the ISA to a different provider). Non-spouse beneficiaries will normally have the investments sold and receive the value as cash.

How to claim an Additional Permitted Subscription (APS)

Upon your death, your spouse or civil partner can claim an Additional Permitted Subscription (explained above) by filling out an application form and they have up to three years to claim this additional allowance. An extension of up to 180 days may be granted if the estate takes longer than three years to be administered. There are strict statutory time limits for claiming this allowance. For cash subscriptions, they have three years from the date of death, or 180 days after the administration of the estate is complete, whichever is later. For 'in specie' transfers (moving investments without selling them first), the application must be made within 180 days of beneficial ownership passing to the surviving spouse.

What happens to your ISA if you have no surviving spouse or civil partner

If you leave your ISA to anyone other than your spouse or civil partner (and your estate is worth more than £325,000) then it is likely that they will have to pay inheritance tax. Inheritance tax is currently charged at 40%.

It is worth remembering however that if you are passing your assets on to 'direct descendants' (which includes children or grandchildren) and your assets include your family home, you can pass on an additional £175,000 tax-free. This is called the 'main residence nil-rate band' and means that the total amount that your beneficiaries could inherit tax-free is £500,000 (for the 2026/27 tax year).