IHT on Bank Accounts and Savings UK: Inheritance Tax on Cash, Savings Bonds, and NS&I (2026)
All cash — in every type of account including cash ISAs — is in the IHT estate at face value on death. The ISA wrapper removes income tax but not IHT. Joint accounts pass by survivorship but the deceased's share is still an IHT asset. The normal expenditure from income exemption (s21 IHTA 1984) provides an uncapped route to gifting surplus income without an IHT clock.
| Account / Product | IHT Estate? | IHT Value | Notes |
|---|---|---|---|
| Current / savings account | Yes | Balance at death | Face value; all accounts declared on IHT406 |
| Cash ISA | Yes | Balance at death | ISA removes income tax — NOT IHT |
| NS&I Premium Bonds | Yes | Face value of bonds | No additional value above face; prizes cease on death |
| NS&I savings certificates | Yes | Face value + accrued bonus | Income-tax-free growth does not extend to IHT |
| Fixed-rate savings bond | Yes | Balance + accrued interest | Include interest accrued to date of death |
| Joint account (survivorship) | Half in estate | Deceased's share (typically 50%) | Spousal share exempt (s18 IHTA); IHT on non-spouse share |
| AIM ISA (BPR qualifying) | Potentially nil BPR | OMV of AIM shares | BPR after 2yr in qualifying AIM shares; £1m cap Apr 2026 |
Cash, Savings, and IHT: A Complete Guide
Cash in bank and savings accounts: fully in the IHT estate
All money held in bank accounts, current accounts, savings accounts, building society accounts, and fixed-rate bonds is included in the IHT estate at its face value (the balance) on the date of death. There is no minimum below which cash is exempt. There is no account type that shelters cash from IHT — with two practical exceptions: (1) Money spent before death is not in the estate (cash converted into consumables, used for holidays, home improvements, living expenses — once spent, it is no longer an asset). (2) Money gifted to individuals before death as PETs — if the donor survives seven years, the gift is fully exempt. The executor must value all bank accounts at date of death and declare them on the IHT400 estate return (form IHT406 covers bank and building society accounts). Multiple accounts must be declared individually — averaging across accounts is not permitted. HMRC can cross-check declared balances against data received from financial institutions (third-party reporting). Underdeclaring bank balances is one of the most common IHT errors and can result in penalties and interest charges.
ISAs and IHT: the wrapper removes income tax but not IHT
A cash ISA holds savings free of income tax on the interest earned. This is a valuable benefit for higher-rate taxpayers. However, the ISA wrapper provides no IHT protection: a cash ISA is a bank or building society account and is included in the IHT estate at its full balance on death. The 'I' in ISA stands for Individual Savings Account — the individual account holder's estate. The income-tax exemption applies during the account holder's lifetime; on death, the ISA balance passes into the estate and is subject to IHT in the same way as any other cash balance. The Additional Permitted Subscription (APS) allows a surviving spouse to inherit the deceased's ISA balance and make an additional ISA contribution of up to that amount (preserving the tax-free status within the survivor's ISA) — but this is an income tax benefit for the survivor, not an IHT exemption for the estate. Cash ISA strategy for IHT: there is no IHT advantage to holding cash in a cash ISA vs a regular savings account. For IHT planning, the relevant question is what to do with the cash — not which account to hold it in.
NS&I: Premium Bonds, savings bonds, and certificates
National Savings and Investments (NS&I) products are personal property in the IHT estate at their face value on death. Premium Bonds: the balance of Premium Bonds held at death is included in the estate at face value. The current eligibility prize structure does not create an additional asset above face value. Premium Bonds pass to a beneficiary or continue to be held for up to 12 months after death (during which prizes continue to be paid). NS&I savings certificates: included at face value plus any accrued bonus. NS&I income bonds and investment accounts: included at balance plus accrued interest. None of these NS&I products carry an IHT exemption. Their income tax advantages (interest free of income tax for NS&I certificates and ISAs) do not extend to IHT. The executor contacts NS&I directly after death to obtain a date-of-death valuation for each holding. NS&I valuations are provided free of charge for probate purposes.
Joint bank accounts: the survivorship and IHT rules
Bank accounts held in joint names with right of survivorship pass automatically to the surviving account holder on death — the account does not form part of the deceased's estate in the probate sense (it does not need to be administered by the executor). However, the IHT treatment is different from the probate treatment. For IHT purposes: the deceased's half share of the joint account is treated as part of their estate (s5(2) IHTA 1984 — property in which the deceased had a beneficial interest). The first deceased's share (typically 50% of the joint account balance) is included in their IHT estate at death. If both account holders contributed equally, 50% of the balance is in the IHT estate. If one party contributed all the funds, the entire account value may be in their estate — not just 50%. Transfers to a surviving spouse: where the surviving joint account holder is the deceased's spouse or civil partner, the spousal exemption (s18 IHTA 1984) applies to the deceased's share — no IHT on the joint account passing to a spouse. The IHT issue arises on the second death — when the entire account balance is in the survivor's estate.
IHT planning for cash-heavy estates: spending, gifting, and reinvesting
For individuals with significant cash savings and an estate above the NRB, the options for reducing IHT on cash are: (1) Spend the cash: money spent on quality of life (travel, home, experiences) reduces the estate. Unlike gifting, there is no seven-year clock or PET complexity. (2) Gift as PETs: cash gifts to individuals start the IHT seven-year clock immediately. The annual exemption (£3,000/year, with one year of carry-forward) and normal expenditure from income (s21 IHTA 1984 — uncapped, for gifts from regular surplus income) provide immediate IHT exemptions. Larger cash PETs are fully exempt after seven years; taper relief reduces the IHT from year three. (3) Reinvest in BPR-qualifying assets: reinvesting cash into AIM shares (in qualifying trading companies) or EIS investments can qualify for 100% BPR after a two-year holding period — converting taxable cash into a (potentially) BPR-protected investment. From April 2026, the £1m BPR cap limits 100% relief on above-cap amounts. (4) Pension contributions: cash contributed to a pension (within the annual allowance) moves into the pension wrapper — currently outside the IHT estate until April 2027. (5) Life insurance in trust: cash paid as premium on a whole-of-life policy in trust reduces the estate (ongoing reduction via premiums) and creates a trust asset to fund IHT.
Normal expenditure from income: the uncapped exemption
The normal expenditure from income exemption (s21 IHTA 1984) is one of the most underused IHT planning tools for individuals with significant savings and investment income. The exemption applies where: (1) The gift is made as part of the donor's normal expenditure; (2) Taking one year with another, the gifts are made out of income (not capital); (3) After making the gift, the donor is left with sufficient income to maintain their usual standard of living. Qualifying payments include: regular cash transfers to children or grandchildren; standing-order gifts; life insurance premiums paid on behalf of another person (or in trust). There is no upper limit on the normal expenditure from income exemption. A wealthy retiree who regularly gifts £10,000 per month from investment income (maintaining their standard of living) can potentially exempt £120,000 per year from IHT — with no seven-year clock. The key requirement is that the gifts are 'normal' (regular, not exceptional) and from income (not from capital). Evidence: donors should keep clear records of income and expenditure, showing that gifts came from surplus income — form IHT403 (Gifts) asks for evidence of normal expenditure patterns.
Frequently Asked Questions
Do bank accounts and savings attract inheritance tax in the UK?
Yes. All cash in bank accounts, savings accounts, building society accounts, fixed-rate bonds, and NS&I products is included in the IHT estate at its full face value on death. There is no IHT exemption for savings — including cash ISAs (the ISA wrapper removes income tax on interest, not IHT). The executor declares all accounts individually on form IHT406 of the IHT400 return. HMRC cross-checks declared balances against financial institution data.
Does a cash ISA avoid inheritance tax?
No. A cash ISA is included in the IHT estate at its full balance on death. The ISA wrapper removes income tax on interest earned during the account holder's lifetime — it provides no IHT protection. The surviving spouse can make an Additional Permitted Subscription (APS) of up to the deceased's ISA balance into their own ISA (preserving the income-tax benefit) — but this does not affect the IHT charged on the estate. For IHT planning purposes, a cash ISA is treated identically to any other savings account.
Does a joint bank account go through the estate for inheritance tax?
For probate purposes, a joint account with right of survivorship passes automatically to the surviving holder outside the estate. For IHT, the deceased's beneficial share (typically 50% — or a larger share if they contributed all the funds) is included in their IHT estate. The surviving spouse's share passes under the spousal exemption (s18 IHTA 1984) — no IHT on the first death. The full balance will be in the surviving spouse's estate for IHT on the second death.
What is the best way to reduce IHT on cash savings?
Options for reducing IHT on cash: (1) Gift as PETs to individuals — starts 7-year clock; exempt after 7 years; (2) Use annual exemption (£3k/year, one year carry-forward) and small gifts exemption (£250/person/year) for immediate IHT-exempt transfers; (3) Normal expenditure from income (s21 IHTA 1984) — uncapped exemption for regular gifts from surplus income; (4) Reinvest in BPR-qualifying AIM or EIS shares (100% BPR after 2yr, £1m cap from April 2026); (5) Pension contributions (within annual allowance) — outside IHT estate until April 2027; (6) Life insurance in trust to fund the IHT bill; (7) Spend the cash on quality of life — money spent is not in the estate.
What is the normal expenditure from income exemption for IHT?
Section 21 IHTA 1984 exempts gifts that are made from the donor's surplus income as part of their normal expenditure pattern. The requirements: (1) gifts form part of the normal expenditure; (2) made from income (not capital); (3) the donor retains sufficient income to maintain their usual standard of living. There is no upper limit. Regular monthly transfers, life insurance premiums, and standing-order gifts can qualify. Keep clear records on form IHT403 showing that gifts were made from surplus income — without evidence, HMRC may disallow the exemption.
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