What Happens to an ISA When You Die UK (2026): APS, Probate & Inheritance

When an ISA holder dies, the tax-free status of the ISA wrapper ceases from the date of death. The ISA becomes a 'continuing account of a deceased investor' and can continue to earn interest or growth (tax-free within a limited window) while the estate is being administered — but no further subscriptions can be made to it. HMRC allows the tax-free status to continue until the earlier of: the administration of the estate being complete, the account being closed, or three years from the date of death. After that, any income or gains on the funds become taxable. The proceeds of the ISA ultimately form part of the estate and pass either to the beneficiary named in the will (or to whoever inherits the residue) or under intestacy if there is no will. The ISA provider must be notified of the death and will follow a formal estate claim process.

The Additional Permitted Subscription (APS) is a one-off additional ISA allowance available to a surviving spouse or civil partner when their partner dies after 3 December 2014. It allows the survivor to subscribe an additional amount into their own ISA equal to the value of the deceased's ISA holdings — on top of the normal annual ISA allowance (£20,000 in 2026/27). Crucially, the APS is an allowance to subscribe into the survivor's own ISA — it is not the actual funds. The survivor can fund it from any source, not just from the inherited ISA funds. The APS is available whether or not the ISA assets pass to the spouse under the will — it is triggered by the death of the ISA holder spouse, not by the inheritance itself. The APS must typically be claimed within three years of the date of death or 180 days after the administration of the estate is complete, whichever is later.

Yes — ISA funds are part of the deceased's estate for inheritance tax purposes. The tax-free status of the ISA applies to income and capital gains during the holder's lifetime, but does not provide any exemption from IHT on death. The full value of all ISA holdings at date of death is included in the estate valuation for IHT400 purposes. The IHT nil-rate band (£325,000) and any residence nil-rate band apply in the normal way. The spousal exemption also applies: ISA funds left to a surviving spouse are IHT-exempt (the spouse would receive them free of IHT and could use the APS to re-shelter them in their own ISA). ISA funds left to children or other beneficiaries are taxed as part of the estate at 40% above the nil-rate band. A dedicated Innovative Finance ISA (IFISA) or Lifetime ISA (LISA) follows the same IHT rules — the tax-free wrapper confers no IHT advantage.

The executor notifies the ISA provider of the death by sending a certified copy of the death certificate. The provider will freeze the account. During the estate administration period, the ISA earns income and growth tax-free (HMRC allows this for up to three years or until the estate is complete). The executor then has two options: (1) Close the ISA and receive the cash proceeds, which become estate assets available for distribution. (2) Transfer the ISA in-kind to a beneficiary (if the ISA provider offers this). For a stocks and shares ISA, transferring in-kind preserves the holdings without a forced sale, which may be preferable if the beneficiary wants to hold the same investments. The APS is claimed separately by the surviving spouse through their own ISA provider — it is an administrative step that does not affect the estate administration directly.

The legal treatment on death is the same for both: the ISA wrapper freezes, the tax-free status continues for a limited administration period, the APS is available to a surviving spouse, and the funds form part of the IHT estate. The practical differences are: (1) Valuation: a cash ISA has an exact sterling value; a stocks and shares ISA must be valued at the market price of the underlying investments on the date of death, which requires the executor to obtain a date-of-death portfolio valuation from the provider. (2) Liquidation: cash ISAs are straightforward to close. Stocks and shares ISAs require selling the holdings if the executor is distributing cash — which can take time if markets are illiquid. (3) Transfer in-kind: a stocks and shares ISA can potentially be transferred in-kind to a beneficiary who holds their own ISA with the same provider, preserving the investment strategy. (4) IFISA: if the ISA includes peer-to-peer loans, the estate may need to wait for those loans to mature before the full value can be realised.

Yes — you can leave ISA proceeds to any named person in your will, or they can pass to the residuary beneficiaries if the will does not single them out. You cannot name a 'direct beneficiary' on an ISA account the way you can with a pension or life insurance policy in trust — there is no nomination system for ISAs. The funds always pass through the estate and are subject to the terms of the will and the IHT rules. If there is no will, ISA funds pass under intestacy in the same way as other estate assets. For married couples, the most tax-efficient strategy is often to leave ISA funds to the surviving spouse: this is IHT-exempt via the spousal exemption, and the survivor can claim the APS to effectively double their own ISA balance.

When a Lifetime ISA (LISA) holder dies, the LISA funds pass through the estate in the same way as an ordinary ISA — no withdrawal charge is applied. HMRC confirms that death is not a triggering event for the 25% withdrawal charge. The APS allowance is available to a surviving spouse in the same way as for other ISA types. The LISA funds are included in the IHT estate at full market value. If the LISA was used toward a first property purchase or retirement, the underlying property or savings simply form part of the estate in the usual way. The LISA government bonus (25% of contributions) is treated as part of the account balance — there is no clawback of the bonus on death.