IHT on Cash and Savings: Is Money in the Bank Subject to Inheritance Tax?
Yes — all cash savings in bank accounts, ISAs, NS&I, and Premium Bonds are estate assets and subject to IHT at 40% above your nil-rate band. ISAs provide no IHT protection. Joint accounts between spouses pass by survivorship — no IHT on first death. Gifting strategies and the normal expenditure exemption can reduce a cash-heavy estate.
Cash and Savings: IHT Treatment at Death
| Asset | IHT Status | Details |
|---|---|---|
| Sole bank and building society accounts | Fully in estate | All balances in solely owned accounts are estate assets at the date of death. IHT is charged at 40% above the available nil-rate band. |
| Cash ISA | Fully in estate | An ISA wrapper provides income tax and CGT exemption during the investor's lifetime, but it does NOT provide IHT exemption. The ISA balance is a full estate asset. Additional Permitted Subscription (APS) allowance allows a spouse to inherit the ISA wrapper for income/CGT purposes but does not affect IHT. |
| Stocks and Shares ISA | Fully in estate (cash component) | Cash held within a S&S ISA is an estate asset. The investments within the ISA are also estate assets (unless they qualify for BPR — e.g. AIM shares held for 2+ years qualify for 50% BPR from April 2026). |
| Premium Bonds | Fully in estate | NS&I Premium Bonds are repayable on death and form part of the estate. The estate claims the bonds via NS&I. Any prize draws that occurred before death but prizes not yet received are also estate assets. |
| NS&I products (Savings Certificates, Income Bonds, Direct Saver) | Fully in estate | All National Savings & Investments products are estate assets. NS&I will release funds to executors with a grant of probate. |
| Joint bank account (spouses or civil partners) | No IHT on first death (survivorship) | A joint bank account held as beneficial joint tenants passes automatically to the surviving joint holder. On the first death between spouses, the spousal exemption means no IHT arises. On the second death, the full account balance is in the survivor's estate. |
| Joint bank account (non-spouses) | Deceased's share in estate | For joint accounts between non-spouses, the deceased's share passes to the surviving holder. The deceased's beneficial share (not always 50% — depends on contribution) is an estate asset and IHT applies. |
| Cash gifts made within 7 years of death (failed PETs) | May be chargeable on death | Cash gifted during lifetime is a PET. If the donor dies within 7 years, the gift becomes chargeable to IHT with taper relief from year 3. Gifts that survive 7 years are fully exempt. |
Frequently Asked Questions
Is money in a bank account subject to Inheritance Tax when you die?
Yes — all money held in solely owned bank and building society accounts at the date of death forms part of your estate and is subject to Inheritance Tax (IHT) at 40% on the amount above your available nil-rate band. In 2026/27, the nil-rate band is £325,000 per person (frozen until 2028). If you also qualify for the Residence Nil-Rate Band (a further £175,000 if you leave a qualifying residential property to direct descendants), your estate may have up to £500,000 before IHT applies. There is no special treatment for cash or savings — the IHT rules do not distinguish between cash and any other estate asset. An estate consisting entirely of cash savings above the nil-rate band will pay IHT at 40% just as one holding property or investments would.
Does an ISA protect savings from Inheritance Tax?
No — an Individual Savings Account (ISA) is exempt from income tax and Capital Gains Tax during your lifetime, but it provides no Inheritance Tax protection. The ISA balance — whether Cash ISA or Stocks and Shares ISA — is a full estate asset and is subject to IHT on death. HMRC has confirmed this repeatedly: the ISA wrapper has no IHT benefit. The only IHT-related ISA planning point is the Additional Permitted Subscription (APS): a surviving spouse or civil partner can contribute an additional amount to their own ISA equal to the deceased's ISA balance, preserving the income and CGT tax-free wrapper. But this does not reduce the IHT bill — the estate still pays IHT on the ISA balance. If you want to hold investments outside the IHT estate, an AIM ISA (holding AIM shares qualifying for BPR after 2 years) is one approach — but it is riskier and the BPR applies to the underlying shares, not because of the ISA.
Do Premium Bonds or NS&I products avoid Inheritance Tax?
No — all NS&I products, including Premium Bonds, are estate assets subject to IHT. Premium Bond prize draws held during the holder's lifetime are also a tax-free benefit during life, but any prizes that have accumulated in the account at death form part of the estate. When someone dies holding Premium Bonds, their executors notify NS&I (using the Tell Us Once service or directly), and NS&I will repay the bonds to the estate. The bond value is included in the estate for IHT purposes — there is no NS&I exemption. The estate may continue to hold Premium Bonds for up to 12 months after the date of death (or until the grant of probate if later), during which prize draws continue and prizes are paid to the estate.
Does a joint bank account avoid Inheritance Tax?
A joint bank account between spouses or civil partners passes automatically to the survivor by right of survivorship on the first death — no probate is required for the account and no IHT arises on the first death between spouses (due to the unlimited spousal exemption under s18 IHTA 1984). This is a common and effective way to ensure a surviving spouse has immediate access to funds. However, on the second death (the survivor's death), the full account balance — having passed to the survivor — is in their estate and subject to IHT. For non-married joint account holders (e.g. cohabitees, siblings, business partners), the deceased's beneficial share of the account is an estate asset. The survivorship mechanism transfers legal ownership, but the deceased's share is still chargeable to IHT on their death.
How can you reduce IHT on a cash-heavy estate?
For estates that consist primarily of cash savings, the IHT reduction strategies are: (1) Lifetime gifting: cash gifts are potentially exempt transfers (PETs) — they fall outside the estate if you survive 7 years. Regular annual gifts using the £3,000 annual exemption, and larger one-off gifts (PETs), both reduce the estate over time. (2) Normal expenditure out of income exemption (s21 IHTA 1984): regular gifts from surplus income that leave you with sufficient income to maintain your usual standard of living are immediately exempt — no 7-year clock. If you have more income than you need, making regular gifts (monthly or annually) is one of the most powerful IHT tools for savers. (3) Spend down: simply spending savings on experiences, lifestyle improvements, or gifts to family reduces the estate — there is no IHT on consumed assets. (4) Life insurance in trust: a whole-of-life policy written in trust (so proceeds fall outside the estate) can fund the IHT bill — reducing the net burden on beneficiaries. (5) Charitable legacy: charitable gifts in a will are exempt from IHT — leaving 10% of the estate to charity reduces the IHT rate on the remainder to 36%.
What happens to bank accounts when someone dies — do executors need probate to access the money?
For sole bank accounts, most UK banks will release balances up to a threshold (typically £20,000–£50,000, varying by bank) without requiring a grant of probate — they accept a death certificate and an executor's request. For larger balances, probate is required before the bank will release funds to executors. This creates a practical problem: IHT must be paid to HMRC before probate is granted, but the executors cannot access the bank accounts to pay IHT without probate. The solution is the HMRC Direct Payment Scheme (DPS): under this scheme, banks and building societies pay HMRC directly from the deceased's accounts to fund the IHT payment, without a grant of probate being required. Executors apply to HMRC for an IHT reference number, then instruct the bank to pay the IHT direct to HMRC. Once IHT is paid, probate can be applied for and the accounts can be accessed.
Reduce IHT on Your Savings With a Well-Drafted Will
A will lets you direct your savings efficiently — charitable legacies reduce the IHT rate, nil-rate band trusts protect cash for the next generation, and annual gifting while you are alive reduces the estate over time.
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