What happens to an ISA when someone dies

When someone who held an ISA dies, the account does not simply lose its tax advantages on the day they pass away. For deaths on or after 6 April 2018, the ISA becomes what the rules call a continuing account of a deceased investor: no new money can be paid in, but the savings or investments inside it keep their tax-free status while the estate is being dealt with¹. This status lasts until the earliest of three points: the administration of the estate is completed, the account is closed, or the third anniversary of the death².

The money itself passes to whoever inherits the estate under the will or the intestacy rules. An ISA is not exempt from inheritance tax: it forms part of the person's taxable estate, along with their other savings, property and possessions, except where it passes to a spouse or civil partner¹. A surviving husband, wife or civil partner also has a separate entitlement: a one-off extra ISA allowance equal to the value of the deceased's ISA savings at the date of death, which they can use on top of their normal annual allowance³.

An ISA keeps its tax advantages after the holder dies

The rules changed on 6 April 2018. Before that date, the tax benefits of an ISA fell away on the holder's death: the account ceased to be an ISA and the holdings were simply added to the estate, with any subsequent growth taxed outside the ISA wrapper². From 6 April 2018, all types of ISA held by someone who dies continue to enjoy their tax advantages for a period afterwards, which is why providers now describe these accounts as continuing accounts⁵.

The practical effect is straightforward. Interest that arises after the date of death, and any growth in investments held inside the ISA, remains tax-free while the estate is being administered⁶. The trade-off is that the account is frozen for new money: no one can pay further subscriptions into it, whether the executors, the family or a beneficiary¹. Existing investments can continue to be held and can keep growing.

Providers set out the same end point in their terms, whichever type of ISA is involved. Virgin Money's M Access ISA terms state the tax advantages continue until the earlier of the completion of the administration of the estate, the closure of the account, or the third anniversary of death⁷. Melton Building Society's notice cash ISA uses the same three-way test⁸, and Loanpad, which offers an innovative finance ISA, tells investors their account will be designated a continuing account of a deceased investor, meaning no more money can be added while the tax advantages continue⁶. Transact, an investment platform, applies the same rule to its ISA terms⁹.

One point worth knowing: the continuing account rules apply to deaths on or after 6 April 2018. Where the death occurred before that date, the old treatment applies and the ISA ceased to be an ISA account from the date of death, with the funds then subject to the tax rules in force at that time¹⁰.

The continuing account of a deceased investor: what it means

The legal basis for the continuing ISA is regulation 2G of the Individual Savings Account Regulations 1998. It applies to an account, other than a Junior ISA account, when the account investor has died, and it provides that the account ceases to be a continuing account at the end of the period the regulation sets out⁴. In plain terms, the ISA keeps its wrapper for a limited window so that the estate does not suffer tax simply because probate takes time.

The three possible end points matter because estates vary enormously in how long they take to wind up. If the administration of the estate is completed quickly, the continuing ISA status ends on completion, even if that is well within three years. If the executors close the ISA and withdraw all the funds, that also ends the status. If neither happens, the tax advantages last at most until the third anniversary of the death, and after three years and one day the provider can close the ISA itself¹². Money taken out of the ISA at that point loses its tax-free status, so any growth after closure is taxed like any other savings or investments¹³.

During the continuation period the investments do not have to be sold. Where the deceased held shares or funds, they can remain in place and keep growing tax-free. When the time comes to value them for inheritance tax, HMRC's guidance is to ask the ISA fund manager for a valuation and to use the closing price on the day the person died¹⁴.

The Lifetime ISA follows the same framework. Since 6 April 2018 a Lifetime ISA can remain open as a continuing account of a deceased investor, and the official guidance for account managers is that once told of the death they should not accept any further payments into it¹⁵. The Lifetime ISA also retains its tax benefits after death until the administration of the estate is completed or the account is closed by the beneficiary¹⁶.

Tax on ISA savings and investments during probate

An ISA is a tax wrapper, not an inheritance tax shelter. ISAs form part of a person's taxable estate and are subject to inheritance tax along with other savings, property and possessions, except where they pass to a spouse or civil partner¹. For everyone else who inherits, an ISA is not excluded from inheritance tax: while a widowed partner can inherit tax-free, other beneficiaries receive ISA money as part of the estate like any other asset¹³.

The Lifetime ISA is treated the same way. The government's technical note on the Lifetime ISA states that it has the same inheritance tax treatment as other ISAs, and that on the death of the account holder the account forms part of the estate¹⁷. So the government bonus that built up inside the Lifetime ISA, and any growth, are all valued as part of the estate for inheritance tax purposes.

There are two separate tax questions, and it helps to keep them apart. The first is income tax and capital gains tax on the ISA's contents during administration: the continuing account rules answer that, keeping growth and interest tax-free for the continuation period⁶. The second is inheritance tax on the value of the ISA itself, which depends on who inherits it and the size of the estate, not on the ISA wrapper¹. A valuation of shares held in an ISA for inheritance tax purposes should use the closing price on the day the person died, obtained from the ISA fund manager¹⁴.

If the person died before 6 April 2018, the position is different: the ISA ceased to be an ISA from the date of death and the funds were taxed under the rules of the time, with no continuing account period¹⁰.

Spouses and civil partners: the additional permitted subscription

A surviving spouse or civil partner has an entitlement that no other beneficiary has: an additional ISA allowance, known as the additional permitted subscription or APS. This is a one-off extra allowance equivalent to the value of the deceased person's ISA savings at the time of death, and it sits outside the normal annual subscription limit¹⁸. NS&I puts it plainly: you can inherit an additional ISA allowance if your spouse or civil partner dies, up to the value of their ISA at the date of death¹⁹.

The rules have an earlier starting date than the continuing ISA rules. The entitlement applies where the account investor died on or after 3 December 2014, leaving a surviving spouse or civil partner who subscribes within the permitted period, and where the couple were living together at the date of death²⁰. The regulations that created this, the Individual Savings Account (Amendment) Regulations 2015, were made under powers introduced following the 2014 Autumn Statement and permit the spouse or civil partner of a deceased ISA saver to invest additional sums with tax advantages in an ISA²¹.

Three features of the APS are worth understanding. First, the allowance belongs to the surviving spouse or civil partner regardless of what the deceased person's will says: even if the ISA money itself passes to a child, the surviving partner keeps the extra allowance¹. Second, the amount can be the higher of the value of the investments held in the deceased's account on death and on the account ceasing to be a continuing account, which means growth during administration can increase the allowance²³. Third, an APS does not transfer the deceased's ISA itself: it gives the survivor an extra allowance they can use with the same provider or a different one, and amounts can be combined into one APS account²⁴.

Where the deceased held a Lifetime ISA, the surviving spouse or civil partner receives an APS equal to the amount held in all their ISAs at death, including any government bonus, and there is no government charge on withdrawals made by the surviving spouse or civil partner of a deceased holder¹⁷. The government's policy statement explains that the regulations were made to permit these additional subscriptions and to set out the process where the survivor wishes to make the subscription with a provider other than the one that held the deceased's ISA³.

The dedicated page on the additional permitted subscription explains how to claim and use the allowance in more detail.

Telling the ISA provider and closing or transferring the account

The practical process starts with notifying the provider. Providers generally ask for proof and documentation from all the executors and administrators dealing with the deceased's estate, such as the Grant of Probate or Letters of Administration, the will, or confirmation that there is no will if the person died intestate²⁵. Once the provider knows of the death, the account is designated a continuing account and the clock starts on the continuation period.

What happens next depends on the estate. The executors can leave the funds in place, growing tax-free, while the administration is completed. They can close the account and distribute the cash. Or, where a beneficiary is to receive investments, the holdings can sometimes be transferred without being sold: investments held in a deceased person's ISA can be transferred into the beneficiary's ISA without sale, as long as both had their ISAs with the same provider⁹. Where the accounts are with different providers, the investments may need to be sold and the proceeds distributed.

For a surviving spouse or civil partner using the APS, the mechanics are separate from the estate itself. If the deceased had ISAs with more than one provider, a separate APS arises with each provider; if all the ISAs were with one provider, the values are combined⁹. The survivor can use the allowance with the same provider or a different one, and can transfer an APS account to another provider as previous years' subscriptions²⁴.

A few points of caution:

• No new money can be paid into the deceased's ISA during administration, by anyone¹.
• The provider can close the ISA once three years and one day have passed since the date of death, if the executors have not already done so¹².
• Money withdrawn from the ISA loses its tax-free status once it is paid out of the wrapper¹³.
• For a Lifetime ISA, the account manager must withdraw and repay any government bonuses claimed on payments made after the date of death¹⁵.

If the death occurred before 6 April 2018, the account will already have ceased to be an ISA and the funds will have been dealt with under the tax rules of the time, so the continuing account process does not apply¹⁰.

Junior ISAs when a child or parent dies

Junior ISAs are excluded from the continuing account rules: regulation 2G applies to accounts other than Junior ISA accounts⁴. That means the three-year continuation period described above does not arise for a child's Junior ISA, and different questions apply depending on who has died.

If a child who held a Junior ISA dies, any money in the account is paid to whoever inherits their estate²⁶. The tax-free ISA inheritance rules that apply to spouses do not apply to a child's estate in the ordinary way. There is one narrow exception: if the child was over 16 and married, which is possible in Scotland and Northern Ireland, the money would go to their spouse and the ISA inheritance rules stand¹. Capital Credit Union's Junior Cash ISA terms state the position directly: if the child dies, any money in their Junior ISA will be paid to whoever inherits their estate²⁷.

If a parent or guardian who managed the child's Junior ISA dies, the account itself belongs to the child and is unaffected. A parent or guardian manages a Junior ISA for a child while they are under 16, and once the child reaches 16 they can choose to manage the account themselves²⁸. Junior ISAs automatically turn into an adult ISA when the child turns 18²⁹. Money paid into a Junior ISA by anyone other than the child is a gift to the child, and account managers must inform subscribers of this, so the money does not form part of a deceased parent's estate³⁰.

There is also a terminal illness rule for Junior ISAs. A registered contact may make a claim for withdrawals from a Junior ISA to be permitted where the named child is terminally ill, and once a claim is accepted, withdrawals of any amount may be made by the registered contact at any time³¹. A claim is accepted where the child is accepted by the Department for Work and Pensions as falling within the terminal illness provisions of the Social Security Contributions and Benefits Act 1992, or where evidence of terminal illness is supplied to the satisfaction of HMRC³⁰.

The pages on Junior ISAs explained and what happens to a Junior ISA at 18 cover the ordinary rules for these accounts.

Where to get help

Dealing with money after a death is usually done alongside probate, and free help is available. MoneyHelper, the government-backed money guidance service, and the ISA provider itself can explain what a particular account needs. If a dispute arises with an ISA provider, for example over how an account was handled after a death, the complaints process leads to the Financial Ombudsman Service, which is free to use. Savings held with a failed provider are protected by the FSCS, and this protection applies to money in a cash ISA as it does to ordinary savings¹¹.