Inheritance Tax on Savings UK: Are Cash, ISAs, and Bank Accounts Taxed? (2026)
All savings — bank accounts, cash ISAs, Premium Bonds, fixed-rate bonds, offshore accounts — are in the IHT estate at full face value. The ISA wrapper provides no IHT protection whatsoever. Savings above the IHT threshold are taxed at 40%. The good news: there are several ways to reduce IHT on savings — from lifetime gifting to AIM BPR portfolios.
| Savings / Cash Product | In IHT Estate? | IHT Exemption? | Notes |
|---|---|---|---|
| Bank current account | Yes | None | Full balance + accrued interest at date of death |
| Savings account / easy access | Yes | None | Full balance + accrued interest |
| Fixed-rate bond / fixed-term deposit | Yes | None | Redemption value at date of death (not maturity value) |
| Cash ISA | Yes | None | ISA wrapper provides NO IHT exemption. Full balance in estate. |
| Premium Bonds (NS&I) | Yes | None | NS&I can cash in before probate for Direct Payment Scheme. |
| NS&I savings certificates / index-linked | Yes | None | Encashment value at date of death |
| Offshore savings account (UK domiciled) | Yes | None (limited DTT relief) | All worldwide assets in estate for UK domiciled person |
| S&S ISA (non-AIM funds/ETFs) | Yes | None | Market value at date of death. No IHT exemption. |
| S&S ISA (AIM BPR-qualifying shares, 2yr+) | Yes — but 100% BPR | 100% BPR (up to £1m cap, Apr 2026) | AIM qualifying shares in ISA retain BPR eligibility |
| Pension funds (SIPP) — until April 2027 | No — outside estate | 100% outside estate | From April 2027: enters estate (Budget 2024). Act now. |
2026/27. BPR: £1m combined cap from April 2026; 50% above. Pension: outside estate until 5 April 2027 — enters estate from 6 April 2027 (Budget 2024).
IHT on Savings: Complete Guide
Bank accounts and savings accounts — fully in the IHT estate
All cash held in bank and building society accounts is in the IHT estate at the balance on the date of death, including any accrued interest to that date: (1) Current accounts: full balance at date of death; (2) Instant access savings accounts: full balance plus accrued interest; (3) Fixed-term deposits and fixed-rate bonds: the redemption value at the date of death (not the maturity value — the early redemption value if the bond has not matured); (4) Joint bank accounts: where a joint account passes by survivorship (both account holders as joint tenants), the account passes entirely to the survivor outside the estate on the first death. Where the account is held in different proportions, or passes under the will, only the deceased's share is in the estate; (5) Business bank accounts: the balance in a business account that forms part of the overall business value may be treated as part of the business for BPR purposes (if the cash is required for working capital), or as an excepted asset (if it is surplus investment cash) under s112 IHTA 1984. The estate must show that business cash is genuinely working capital, not investment.
Cash ISAs — the ISA wrapper provides NO IHT exemption
A Cash ISA is in the IHT estate at the full balance on the date of death. Despite being free of income tax on the interest during the holder's lifetime, the ISA wrapper provides absolutely no IHT protection. The full balance is added to the estate and subject to IHT at 40% above the threshold. There is no exception for cash ISAs — the ISA designation is irrelevant for IHT purposes. The ISA 'Additional Permitted Subscription' (APS): where a surviving spouse or civil partner inherits from an ISA holder, they are entitled to a one-off additional ISA subscription equal to the balance of the deceased's ISA — this preserves the income tax benefits within the ISA for the survivor but does not affect IHT (IHT was still payable on the balance on the first death). Note: the APS is available even if the balance has been paid into the estate and the survivor contributes their own equivalent cash to their own ISA.
NS&I products — Premium Bonds, savings certificates, income bonds
National Savings & Investments (NS&I) products are in the IHT estate at their face value at the date of death: (1) Premium Bonds: in the estate at the face value of the bonds held. Premium Bond winnings paid after death (NS&I holds bonds for a period after death and continues paying prizes for a limited time) are also added to the estate if they are attributable to the period before death. NS&I will cash in Premium Bonds to pay IHT before probate is granted (useful for the Direct Payment Scheme); (2) Fixed-interest and index-linked savings certificates: at the encashment value at the date of death (face value plus interest/indexation); (3) Income bonds and Direct Saver accounts: at the balance plus accrued income; (4) NS&I Junior ISA: if the deceased was the registered contact for a child's Junior ISA (not the beneficial owner), the JISA is not in the deceased's estate — it belongs to the child. NS&I products have no IHT exemption. However, Premium Bonds can be cashed in without probate — useful for funding part of the IHT bill before probate is granted.
Offshore savings accounts and bonds
For UK domiciled individuals (or those deemed UK domiciled — s6 IHTA 1984): all assets wherever situated in the world are in the IHT estate. This includes: offshore savings accounts (Channel Islands, Isle of Man, overseas banks); offshore investment bonds; offshore funds and cash held by offshore investment platforms; foreign currency accounts held at overseas banks. Double Tax Treaties: the UK has IHT double tax treaties with a small number of countries (the USA, France, Italy, India, the Netherlands, South Africa, and a few others). These treaties may prevent double taxation where the foreign country also charges an estate or inheritance tax on the same assets. For most countries (including offshore financial centres like Jersey, Guernsey, and the Isle of Man), there is no treaty — the assets are fully included in the UK IHT estate. For those who are not UK domiciled (and not deemed domiciled): only UK-situated assets are in the estate. Offshore assets are outside the IHT estate for non-domiciled individuals.
How to reduce IHT on savings — practical strategies
Since savings have no automatic IHT exemption, the strategies to reduce IHT on savings are: (1) Give savings away during lifetime: annual exemption (£3,000/yr, carry-forward) for the highest priority recipients; normal expenditure from income (s21 IHTA 1984 — uncapped, immediately IHT-free, if gifts are made regularly from surplus income); PETs (gifts to individuals) — IHT-free after 7 years; (2) Invest in AIM BPR-qualifying shares: convert savings into an AIM BPR portfolio. After 2 years' qualifying ownership, the portfolio is 100% IHT-exempt (up to the £1m combined BPR/APR cap from April 2026). Risk: AIM shares are higher risk than cash savings; (3) Pension contributions (before April 2027): contributing savings to a pension (up to £60,000/year + carry-forward) removes them from the IHT estate. From 6 April 2027, pension funds enter the estate (Budget 2024 reform) — the window is closing; (4) Leave 10%+ to charity in the will: charitable legacies reduce the taxable estate (s23 IHTA) and may trigger the 36% reduced rate (s36 IHTA); (5) Equity release: taking out a lifetime mortgage creates a liability deducted from the estate — proceeds can then be given to children as PETs.
Frequently Asked Questions
Is money in a bank account subject to inheritance tax?
Yes — all cash in bank accounts, savings accounts, and building society accounts is in the IHT estate at the full balance at the date of death, plus any accrued interest. There is no exemption for cash savings. The standard IHT threshold (NRB £325,000, plus RNRB £175,000 if applicable) applies to the total estate including savings — savings above the threshold are taxed at 40%.
Are ISA savings exempt from inheritance tax?
No — Cash ISAs and Stocks and Shares ISAs (except AIM BPR-qualifying shares) are in the IHT estate at full face value. The ISA wrapper provides income tax and CGT benefits during life but no IHT exemption. Exception: AIM BPR-qualifying shares held inside a Stocks and Shares ISA may qualify for 100% BPR (IHT-exempt) after 2 years' ownership, up to the £1m combined BPR/APR cap from April 2026.
Are Premium Bonds subject to inheritance tax?
Yes — Premium Bonds are in the IHT estate at their face value at the date of death. NS&I will cash in Premium Bonds to pay IHT before probate is granted (useful for the Direct Payment Scheme). Any prizes paid after death that relate to the period before death are also included. Premium Bonds are not exempt from IHT and should be included in the IHT calculation.
How can I reduce inheritance tax on my savings?
Key strategies to reduce IHT on savings: (1) Give savings away during lifetime — annual exemption (£3,000/yr), normal expenditure from income (uncapped, from surplus income), PETs to individuals (IHT-free after 7 years); (2) Invest in AIM BPR-qualifying shares — 100% IHT-exempt after 2 years (up to £1m cap); (3) Pension contributions before April 2027 — currently outside the estate; (4) Leave 10%+ to charity in the will — 36% reduced IHT rate; (5) Gift savings to grandchildren — uses their NRB and keeps assets in the family.
Do offshore savings count as part of the estate for inheritance tax?
Yes — for UK domiciled individuals, all assets wherever situated in the world are in the IHT estate (ss6-8 IHTA 1984). This includes offshore savings accounts, offshore investment bonds, and foreign bank accounts. Double Tax Treaties with a limited number of countries may prevent double taxation. For non-UK domiciled individuals (and those not deemed UK domiciled), only UK-situated assets are in the IHT estate.
Reduce IHT on Savings — Start With the Will
Savings have no automatic IHT exemption — but a well-structured will that claims the RNRB (up to £175,000 on the home), combined with lifetime gifting of surplus income and AIM BPR investment, can significantly reduce the IHT bill on savings. WillSafe will kits for England and Wales provide the legal starting point.
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