Inheritance Tax on Savings UK (2026): ISAs, Premium Bonds, Cash and Investments

Yes — all savings and investments held in the deceased's sole name are included in the estate for IHT at their full value on the date of death. This includes: (1) CASH SAVINGS ACCOUNTS: bank current accounts; savings accounts; fixed-rate bonds; notice accounts. Valued at the closing balance on the date of death including accrued interest (interest that has been earned but not yet credited is included as income owed to the estate); (2) ISAs (INDIVIDUAL SAVINGS ACCOUNTS): the tax-free status of an ISA is lost on the account holder's death. ISA income and gains that accrued during the deceased's lifetime are not subject to income tax or CGT (the ISA wrapper protected them until death). But from the date of death: the ISA ceases to earn income tax-free; the balance is treated as a regular estate asset for IHT; income earned during estate administration is taxed at the estate income tax rate (20% non-dividend; 8.75% dividend). The ISA is included at its market value on the date of death; (3) PREMIUM BONDS: held by NS&I. Premium Bonds are included in the estate at their face value (purchase price). They do not have a market value that fluctuates — a £10,000 holding is valued at £10,000. However, Premium Bonds have a special post-death rule (see Q2); (4) STOCKS AND SHARES ISA / INVESTMENT ACCOUNTS: shares, funds, and bonds held in investment accounts are included in the estate at their market value on the date of death. For quoted shares: the 'quarter-up' rule applies — value = lower of the two quoted prices + 1/4 of the difference between the two prices. This is the traditional Stock Exchange closing mid-price calculation used for probate valuations; (5) NS&I ACCOUNTS: National Savings Certificates; NS&I Direct ISAs; NS&I Income Bonds; NS&I Investment Account. All included in the estate at their face value plus accrued interest. NS&I will not release funds without a Grant of Probate for holdings above £5,000; (6) FOREIGN SAVINGS AND INVESTMENTS: savings accounts or investments held abroad are included in the estate (if the deceased was UK-domiciled) at their equivalent sterling value on the date of death. Double taxation treaties may reduce IHT in some cases where foreign IHT has already been paid.

ISAs are subject to specific rules on death that differ depending on the type of ISA and whether the account is passing to a surviving spouse: (1) STANDARD ISA (CASH OR STOCKS AND SHARES) — GENERAL RULE: the ISA wrapper ends at death. The account becomes a regular savings or investment account from the date of death — no more tax-free income or gains. The balance is included in the estate for IHT at market value. HMRC will not apply capital gains tax on any gains made inside the ISA before death (the tax-free wrapper covers the pre-death period); (2) ADDITIONAL PERMITTED SUBSCRIPTION (APS) — SURVIVING SPOUSE OR CIVIL PARTNER: a surviving spouse or civil partner can make an 'Additional Permitted Subscription' (APS) into their own ISA equal to the value of the deceased's ISA at the date of death. This is additional to the normal ISA annual allowance (£20,000). The APS preserves the tax-free status — the surviving spouse effectively inherits the ISA benefit. The APS can be used for 3 years from the date of death (or 180 days after estate administration, whichever is later). Important: the APS does not mean the cash physically moves into the surviving spouse's ISA tax-free — it means the surviving spouse gets an additional subscription allowance equal to the ISA value; (3) INHERITED ISA (CONTINUING ACCOUNT) — SURVIVING SPOUSE: some ISA providers allow the ISA account to continue as an 'inherited ISA' until: (a) the estate is administered; (b) the ISA is transferred to the surviving spouse; or (c) up to 3 years from death (or 180 days from completion of estate administration). During this period, the ISA retains its tax-free status even after death. Not all providers offer this — check with the specific ISA provider; (4) AIM ISA — BUSINESS PROPERTY RELIEF: shares held in an AIM ISA in qualifying trading companies can attract BPR (Business Property Relief) — reducing IHT from 40% to 20% (or potentially 0%) after a 2-year holding period. Note: the BPR cap reform from April 2026 (£1m at 0%; excess at 50% relief/20% rate) applies to AIM shares in the same way as other BPR-qualifying assets; (5) JUNIOR ISAS (JISAs): a JISA belongs to the child. On the child's death, the JISA forms part of the child's estate (normally very small); a child's estate will rarely be subject to IHT.

Premium Bonds have a specific post-death rule that many people are unaware of: (1) INCLUDED IN THE ESTATE: Premium Bonds are included in the estate at their face value on the date of death. A £50,000 Premium Bond holding is a £50,000 estate asset. They are subject to IHT in the normal way; (2) POST-DEATH PRIZE ELIGIBILITY: NS&I allows Premium Bonds to remain eligible for prize draws for up to 12 months after the holder's death. This is optional — the executor can choose to encash early or allow them to remain in the draw. Any prizes won after death belong to the estate (not the beneficiary directly); (3) ENCASHING AFTER DEATH: the executor can apply to NS&I to encash the bonds. For holdings below £5,000: NS&I will release funds without a Grant of Probate on receipt of the death certificate, the small estate declaration, and the NS&I form. For holdings of £5,000 or more: a Grant of Probate (or Letters of Administration) is required before NS&I will release the funds; (4) IHT TIMING: the bonds are valued at the date of death (face value). Any prizes won after death are income of the estate (not subject to IHT as part of the initial estate valuation — but the cash received increases the estate assets available for distribution); (5) PRIZE DRAW STRATEGY: with a large Premium Bond holding in a large estate, it may be worth keeping the bonds in the draw for up to 12 months before encashing — the prize draw is a tax-free bonus to the estate. The probability depends on the size of the holding; (6) NS&I DIRECT ACCOUNTS AND NS&I ISAS: treated as regular savings — included at face value; Grant required above £5,000; APS available for spouse on NS&I ISA balance.

Yes — savings can be gifted during lifetime to reduce the estate, but the rules depend on how and when the gifts are made: (1) ANNUAL EXEMPTION (£3,000/YR): each year you can gift £3,000 from savings (or income) completely IHT-free — immediately exempt. Unused exemption carries forward one year (max £6,000). No 7-year clock; (2) SMALL GIFTS (£250/PERSON): unlimited gifts of £250 or less to any number of individuals — immediately exempt; (3) NORMAL EXPENDITURE OUT OF INCOME (IHTA 1984 s.21): if surplus income (not capital from savings) is given away as part of a regular pattern, the gifts are immediately exempt with no limit. This works for interest and dividend income from investments — but only if: (a) the gift comes from income; (b) a habitual regular pattern is established; (c) the donor retains enough income for their normal lifestyle. Drawing down capital savings and giving them away does NOT qualify under s.21 (it is the income generated by the savings that can be given, not the savings themselves); (4) POTENTIALLY EXEMPT TRANSFERS (PETs): lump sum gifts of savings to individuals start the 7-year clock. If the donor survives 7 years, the gift is IHT-exempt. Taper relief reduces IHT from years 3-7. Gifts of capital savings exceeding the annual exemption are PETs — they use no NRB during lifetime but reduce the estate if the donor survives; (5) CHARITABLE GIVING: gifts of savings to charity are immediately exempt (no limit; no 7-year clock). If 10% of the net estate passes to charity, the rate on the balance drops from 40% to 36%; (6) PASSING SAVINGS TO A SPOUSE: leaving savings to a surviving spouse is IHT-free under the spouse exemption (IHTA 1984 s.18 — unlimited). The savings then form part of the survivor's estate and are taxed on the second death.

The IHT valuation of investments and shares follows specific rules: (1) QUOTED SHARES AND UNIT TRUSTS: the 'quarter-up' rule applies. For each shareholding, take the two Stock Exchange closing prices on the date of death (lower and higher price from the official list): Value = lower price + 1/4 × (higher price - lower price). For example: shares closing at 100p and 110p → value = 100 + (1/4 × 10) = 102.5p per share. If the date of death falls on a weekend or bank holiday, use the closing prices from the immediately preceding business day — or alternatively, if favourable, the average of the preceding business day's prices and the following business day's prices (whichever gives the lower value — the executor can choose); (2) UNIT TRUSTS, OEICS, AND INVESTMENT FUNDS: valued at the bid price (lower of two prices) on the date of death. Some unit trusts quote a single price (swinging single price) — use that price; (3) AIM-LISTED SHARES: BPR may apply. Valued at market price; but the chargeable value may be reduced by BPR (0% for first £1m after April 2026 reforms; 20% rate above £1m); (4) UNQUOTED SHARES (PRIVATE COMPANY): the most complex valuation. There is no market price — the shares must be valued using accepted business valuation methods: asset backing; price/earnings multiple; dividend yield basis. HMRC's Shares and Assets Valuation (SAV) team scrutinises unquoted share values carefully. A professional business valuation is usually required; (5) ACCRUED INCOME: for fixed-income investments (government gilts; corporate bonds), the interest that has accrued since the last payment date is included as 'accrued income'. This must be separately declared on form IHT411 (listed stocks and shares); (6) WHAT TO INCLUDE ON THE IHT RETURN: all investments held in the deceased's sole name must be listed on form IHT411 (quoted) or IHT412 (unquoted). Investments in joint names are listed with the appropriate fractional interest. ISAs and bonds are declared on form IHT417.