What Happens to Your ISA When You Die UK 2026: APS and Inheritance

ISAs are one of the most tax-efficient savings and investment wrappers available to UK residents, with a £20,000 annual allowance in 2026/27 and all growth, income, and withdrawals free of tax. But what happens to your ISA when you die? The answer is more nuanced than most people expect, and getting it wrong could cost your family money.

Your ISA Does Not Automatically Pass Tax-Free

First, an important clarification: an ISA does not automatically lose its tax wrapper and become part of the general estate with no special treatment. But it also does not simply transfer to your spouse or civil partner intact. What happens depends on who inherits, the type of ISA, and whether the Additional Permitted Subscription (APS) is used.

The Additional Permitted Subscription (APS)

The APS is the key rule for married couples and civil partners. When an ISA holder dies, their spouse or civil partner receives a one-off additional ISA allowance equal to the value of the deceased's ISA at the date of death (or the date the account is closed, whichever is higher in certain circumstances).

This is on top of the survivor's normal annual ISA allowance (£20,000 in 2026/27).

Example: Your spouse dies with ISAs worth £85,000. You receive an APS of £85,000. You can subscribe this to your own ISA, adding £85,000 to whatever you contribute from your normal annual allowance. The invested funds continue to grow tax-free inside the ISA wrapper.

The APS allowance is available for three years from the date of death, or 180 days after the administration of the estate is complete, whichever is later. You do not have to use the deceased's actual assets -- you can subscribe cash from anywhere (including other inherited assets or your own savings) up to the APS limit.

How to Claim APS

You claim APS through the ISA provider that held the deceased's account (or another ISA provider if you want to consolidate). The provider will require sight of the death certificate and evidence of the marriage or civil partnership. The process is straightforward but must be actively initiated -- it does not happen automatically.

The ISA account itself remains open after the death (now called a "continuing ISA" or "administration ISA") and continues to earn interest or investment returns tax-free until either the estate administration is complete or three years from death, whichever comes first. After that, the tax-free status lapses.

ISA Income Before Death

During the deceased's lifetime, all income and gains within the ISA were tax-free. Any withdrawals they made were not taxable. The ISA wrapper functions identically for tax purposes during the holder's life regardless of age.

The ISA and Inheritance Tax

Here is an important point many people miss: an ISA sits within the estate for Inheritance Tax purposes. Unlike a pension (pre-April 2027 at least), an ISA does not have any special IHT exemption. If your estate including ISA funds exceeds the nil-rate band (£325,000 in 2026/27), plus the residence nil-rate band (£175,000) where applicable, IHT is payable at 40% on the excess.

The APS is a mechanism to preserve the tax-efficiency of ISA funds for a surviving spouse -- it is not an IHT exemption. However, assets left to a spouse or civil partner are IHT-exempt under the spousal exemption anyway (unlimited IHT-free transfers between spouses), so the IHT issue only arises when the second spouse dies and assets pass to children or other beneficiaries.

Planning point: Because ISAs are in the estate for IHT, some advisers recommend drawing down ISA funds in later life (spending them or gifting them) rather than holding a large ISA at death. Gifts that survive seven years fall outside the estate. This contrasts with the pre-2027 pension strategy of preserving pensions outside the estate -- though from April 2027, pensions will also be within IHT scope.

Non-Spouse Beneficiaries

If the ISA holder is not married or does not have a civil partner, the APS does not apply to anyone else. Children, unmarried partners, siblings, or other beneficiaries do not receive a special ISA allowance. The ISA assets form part of the estate, are distributed according to the will (or intestacy rules if no will), and any inherited cash or investments can only be put into a new ISA up to the recipient's own annual allowance (£20,000).

An unmarried partner of many years receives no APS, no IHT spousal exemption, and inherits only what the will specifies. This makes estate planning particularly important for cohabiting couples.

Lifetime ISAs and Death

If the deceased held a Lifetime ISA (LISA) -- with a £4,000 annual limit and 25% government bonus, capped at £1,000/yr -- the rules on death are: the funds form part of the estate and no withdrawal penalty applies. The 25% withdrawal charge is waived on death. The LISA funds and any government bonus are available to the estate without penalty.

Practical Steps to Protect Your ISA Estate Planning

• Tell your ISA provider that you are married or in a civil partnership (some providers ask; it helps them flag APS)
• Ensure your spouse knows about the APS and the time limit (3 years from death or 180 days from estate completion)
• Make a will -- without one, ISA funds may pass under intestacy rules, which may not reflect your wishes
• Consider whether drawing down large ISAs to fund gifts or spending is more tax-efficient than holding them until death

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Use our ISA Calculator to model how your ISA grows over time, and our Inheritance Tax Calculator to see how ISA funds interact with your overall estate planning.