Inherited ISA Allowance UK (2026): The Additional Permitted Subscription for Surviving Spouses and Civil Partners

The inherited ISA allowance — formally called the Additional Permitted Subscription (APS) — allows a surviving spouse or civil partner to make an extra ISA contribution above the normal annual ISA allowance, equal to the value of their deceased partner's ISA: (1) THE ANNUAL ISA ALLOWANCE: each adult can subscribe up to £20,000 per tax year into an Individual Savings Account (ISA). The annual allowance covers all types of ISA combined (Cash ISA, Stocks and Shares ISA, Innovative Finance ISA, and Lifetime ISA). Contributions to ISAs grow free of income tax and capital gains tax; (2) THE APS — ADDITIONAL PERMITTED SUBSCRIPTION: the APS was introduced with effect from 06 April 2015. Where a person's spouse or civil partner dies on or after 03 December 2014, the survivor acquires an APS equal to the VALUE of the deceased's ISA(s) at the date of death. The APS is a separate, additional allowance on top of the survivor's own £20,000 annual allowance — it does not use up any of the annual allowance; (3) WHO QUALIFIES: the APS is available to: (a) a surviving SPOUSE — including a surviving spouse who inherits the ISA assets and a surviving spouse who does not inherit the ISA assets (the allowance is triggered by the death, not by inheriting the ISA funds); (b) a surviving CIVIL PARTNER — on the same basis; (c) surviving cohabitants do NOT qualify for the APS — the APS is available only to spouses and civil partners; (4) THE APS AMOUNT: the APS is equal to the value of the deceased's ISA(s) at whichever is higher of: (a) the date of death; (b) the date the ISA ceases to be a 'continuing account of a deceased investor' (i.e. the date the ISA is closed by the ISA manager, which can be up to 3 years after death). The survivor chooses which valuation date to use — if the ISA investments have grown between death and closure, the survivor can use the higher closure value.

There are two key deadlines for using the APS: (1) THE THREE-YEAR DEADLINE FROM DEATH: the APS subscription must be made within THREE YEARS of the date of the deceased's death. If the surviving spouse does not use the APS within three years, it is lost — there is no extension or carry-forward. The three-year window runs from the day after death to the third anniversary of the death; (2) THE ALTERNATIVE — 180 DAYS FROM ACCOUNT ADMINISTRATION COMPLETION: if the administration of the deceased's estate takes more than three years (which can happen in complex estates), the survivor has 180 days from the date the ISA administration is completed (i.e. the date the ISA manager notifies the survivor that the account has been wound up). This 180-day window is an alternative to the three-year window — the survivor uses whichever expires later; (3) CHOOSING THE VALUATION DATE: as noted above, the survivor can choose whether to base the APS on the death value or the closure value of the ISA. The survivor should instruct the ISA manager to keep the ISA open as a 'continuing account of a deceased investor' if they wish to benefit from any growth. Growth in the ISA after death is still sheltered from income tax and CGT during the administration period (though this has been capped at 3 years maximum since HMRC introduced closure rules); (4) PRACTICAL PLANNING: the surviving spouse should: (a) contact the deceased's ISA manager promptly after the death; (b) ask for confirmation of the APS amount available; (c) decide whether to use the APS by transferring the assets in-specie (keeping the same investments) or by taking cash and re-subscribing to a new ISA; (d) use the APS before the three-year deadline, ideally in the tax year most tax-efficiently.

The mechanics of using the APS are straightforward but require contact with ISA providers: (1) WHERE CAN THE APS BE INVESTED: the surviving spouse can use their APS at any ISA manager that accepts APS subscriptions — it does NOT have to be the same ISA manager that held the deceased's ISA. The survivor can choose: (a) a Cash ISA; (b) a Stocks and Shares ISA; (c) an Innovative Finance ISA; The APS cannot be used for a Lifetime ISA (LISA); (2) IN-SPECIE TRANSFER — THE MOST SEAMLESS ROUTE: where the deceased's ISA assets consist of investments (shares, funds, bonds), the survivor can transfer the assets IN SPECIE to their own ISA with the same ISA manager without selling and repurchasing. This avoids: (a) selling and buying costs; (b) CGT on any gain between the deceased's death and the transfer (though gain within the ISA wrapper is not taxable); (c) market timing risk (reinvesting at a different price). In-specie transfer requires the deceased's ISA manager to accept the transfer — most major platforms do; (3) CASH SUBSCRIPTION: where the survivor does not want the same investments, they can take cash from the estate, subscribe to their own ISA, and invest as they wish. The APS allows the cash subscription even if the APS amount exceeds the normal annual allowance; (4) MULTIPLE APS — MULTIPLE DECEASED ISAS: if the deceased had multiple ISAs with different managers, each creates a separate APS entitlement. The survivor can use each APS at any compliant ISA manager — they are not restricted to one provider per APS; (5) PARTIAL USE: the survivor can use part of the APS in one tax year and the remainder in a subsequent year — as long as the overall three-year deadline has not passed. The unused portion of the APS is not carried forward beyond the deadline.

The IHT treatment of ISAs and the APS are frequently misunderstood: (1) ISAS ARE SUBJECT TO IHT: an ISA is not exempt from IHT. The value of a deceased person's ISA forms part of their taxable estate for IHT purposes — it is treated like any other savings account. There is NO specific IHT exemption for ISAs (unlike pensions, which are generally outside the estate). If the deceased's estate (including the ISA) exceeds the nil-rate band and any available RNRB, IHT is due; (2) THE SPOUSAL EXEMPTION: where the ISA assets pass to the surviving spouse (either directly under the will or by residue), the spousal exemption (IHTA 1984 s.18) applies — no IHT is payable on the value passing to the spouse. The APS does not change this IHT treatment — the ISA assets are still either exempt (spouse-to-spouse) or taxable (to non-spouse beneficiaries); (3) THE APS PRESERVES THE TAX-FREE WRAPPER: the principal benefit of the APS is NOT IHT — it is the preservation of the TAX-FREE INCOME AND CGT WRAPPER of the ISA investments for the surviving spouse. Without the APS, the surviving spouse who inherits the ISA assets would receive them outside any ISA wrapper — and future income and gains would be subject to income tax and CGT at the survivor's marginal rates. The APS allows the survivor to re-wrap those assets in their own ISA immediately; (4) FROM APRIL 2027 — PENSION AND ISA IHT CHANGES: the government announced in Autumn Budget 2024 that pension death benefits will be subject to IHT from April 2027 (with further consultation). ISA assets remain subject to IHT under existing rules. The interaction of pensions and ISAs in estate planning will change significantly from 2027; (5) THE IMPORTANCE OF ESTATE PLANNING: for couples with significant ISA savings, the APS is a valuable tool that should be considered as part of the wider estate plan. Ensuring that the will makes clear provision for ISA assets to pass to the surviving spouse (to trigger both the spousal exemption and the APS) is good practice.

When an ISA account holder dies, the ISA does not immediately lose its tax-free status: (1) THE 'CONTINUING ACCOUNT OF A DECEASED INVESTOR' STATUS: when an ISA account holder dies, their ISA automatically becomes a 'continuing account of a deceased investor'. In this status: (a) no new subscriptions can be made to the account; (b) withdrawals can be made by the personal representatives; (c) the ISA continues to shelter income and capital gains from tax; (d) this tax-free shelter continues until the account is closed by the ISA manager (following the estate administration) OR until the third anniversary of the death — whichever comes first; (2) MAXIMUM CONTINUING PERIOD: from April 2018, the period during which the ISA maintains its tax-free status was extended to allow the ISA to remain open until the administration is complete or 3 years from death (whichever is sooner). This replaced the previous rule that limited the continuing period to 3 years in all cases regardless of administration completion; (3) PRACTICAL STEPS FOR PERSONAL REPRESENTATIVES: when administering an estate that includes an ISA, the PRs should: (a) contact the ISA manager promptly and provide a death certificate; (b) clarify whether the surviving spouse wishes to use the APS; (c) obtain confirmation of the APS amount available (based on date of death value or projected closure value); (d) instruct the ISA manager on whether to make an in-specie transfer or cash settlement; (4) WHEN THE ISA CLOSES: once the ISA is closed (or after 3 years), it loses its tax-free status. Any assets transferred out of the ISA on closure are held outside the ISA wrapper — the surviving spouse should use their APS promptly to re-shelter those assets; (5) JOINT ISAS: ISAs cannot be held jointly — each ISA must be in a single individual's name. It is not possible to transfer an ISA to a surviving spouse in the same way as jointly owned bank accounts. The APS is the mechanism designed to compensate for this limitation.