What Happens to a Stocks and Shares ISA When the Owner Dies?

An ISA ends when its owner dies, but the tax benefit does not have to disappear entirely. Here is how the wrapper is treated, who can inherit the allowance and what happens to the investments.

Summary

• A stocks and shares ISA ends on death, and if it is not closed sooner the provider closes it three years and one day later.
• Until the ISA is closed, no Income Tax or Capital Gains Tax is due inside it, but its value counts towards the estate for Inheritance Tax.
• A surviving spouse or civil partner can use an Additional Permitted Subscription to add a tax-free amount to their own ISA allowance.
• Direct transfer of investments into a surviving spouse’s ISA is only possible if both accounts are held with the same provider.
• Only a spouse or civil partner can inherit the allowance; other beneficiaries receive the money but not the tax wrapper.

An Individual Savings Account (ISA) is a UK account in which savings and investments grow free of Income Tax and Capital Gains Tax. That treatment is tied to the individual holder, which raises an obvious question when they die. The account itself ends, but a surviving spouse or civil partner may be able to preserve part of its tax benefit through an inherited allowance.

What Happens to a Stocks and Shares ISA When the Owner Dies?

The ISA ends on death, but it does not lose its tax protection straight away. If nobody closes it earlier, the provider will close it three years and one day after the death. Until then, there is no Income Tax or Capital Gains Tax to pay on the investments inside. No new payments can be made, and the value of the account counts towards the estate when Inheritance Tax is worked out.

Who Qualifies for the Inherited ISA Allowance?

Only a surviving spouse or civil partner qualifies. You must have been married to, or in a civil partnership with, the person who died, and the rules do not extend to cohabiting partners, children or anyone else named in the will. Other beneficiaries can receive the money, but it reaches them as a plain sum from the estate rather than as a tax-free wrapper. There is also a cutoff for older cases: you cannot inherit someone’s ISA allowance if they died before 3 December 2014.

What Is the Additional Permitted Subscription and How Much Is It Worth?

The Additional Permitted Subscription (APS) is an extra ISA allowance for a surviving spouse or civil partner, used on top of their own. It does not transfer the account itself; instead, it lets you pay a tax-free amount into your own ISA, up to a limit tied to the deceased person’s holding. For deaths on or after 6 April 2018, that limit is either the value held in their ISA when they died or the value of the ISA when it is closed. For example, if your partner had £5,000 at death, you could add £5,000 to your normal annual allowance, which for the 2026 to 2027 tax year is £20,000 across all your ISAs.

Because the APS is an allowance rather than an account, the money must go into an existing ISA in your name or a new one you open. ISAs Explained: Which Type Suits Your Savings Goal? sets out how the different wrappers work, which is useful background before you choose where to put it.

How Long Do You Have to Use the Inherited Allowance?

The APS is available within three years of the death, or within 180 days after the estate has been settled. The second window recognises that estate administration can take a long time. Providers may apply the timing rules differently, so contact your own ISA provider or the deceased person’s provider early to confirm the deadline and the documents they need.

What Happens to the Investments While the Estate Is Being Settled?

For deaths on or after 6 April 2018, the ISA becomes what HMRC calls a continuing account of a deceased investor: it stays open in a limited form, remains tax-free, counts towards the estate, and accepts no new payments. It ends on whichever comes first: the executor closes it, the estate administration finishes, or three years and one day have passed since the death. If that final date arrives first, the provider closes it.

The executor has options. The provider can be instructed to sell the investments or, for a stocks and shares ISA, to transfer them directly into a surviving spouse’s or civil partner’s ISA, though only where both accounts are with the same firm. The exact process depends on the ISA’s terms and conditions, so check those before giving instructions.

Does Inheritance Tax Apply to an ISA?

Yes. The tax-free treatment inside an ISA does not carry into death: its value counts towards the estate for Inheritance Tax, the tax charged on what a person leaves behind. The amount due depends on the size of the estate and who receives it. Anything left to a spouse or civil partner is normally covered by the exemption between them, but money left to other beneficiaries can add to the taxable total.

Executors who need to pay a bill can ask the provider to pay some or all of the Inheritance Tax directly from the deceased person’s account under the Direct Payment Scheme. This uses form IHT423, sent to the provider alongside the Inheritance Tax Account form IHT400 for HMRC, and it can be started before probate is granted.

What About Other Types of ISA?

The broad pattern is similar, but the details differ by wrapper:

• Cash ISAs. A cash ISA also becomes a continuing account of a deceased investor, and the same APS rules apply. Unlike stocks and shares ISAs, it generally cannot be transferred in kind; the allowance is used by paying money into your own account.
• Lifetime ISAs. Since 6 April 2018, a Lifetime ISA can also remain open as a continuing account, with no further payments accepted. Any government bonus accrued on payments up to the date of death can be claimed, and the estate receives it once the account is closed.
• Junior ISAs. These work differently because the money belongs to the child. A parent or guardian manages the account, the child takes control at 16 and cannot withdraw until 18. The limit is £9,000 in the 2026 to 2027 tax year.

What Do Executors Need to Do First?

The practical starting point is to notify the ISA provider of the death and ask how they handle continuing accounts. The executor then decides whether to close the account, keep it running during the administration, or arrange a sale or transfer where a surviving spouse is involved. Providers usually release funds as part of the wider estate administration, so expect to provide documents before anything is paid out. Watch the three year and one day closing date, because an account left untouched past that point will be closed by the provider whether or not the estate is finished.

Questions People Ask About ISA Probate and Administration

Does the ISA avoid tax just because it was an ISA? Inside the wrapper, yes: no Income Tax or Capital Gains Tax is due until the account is closed. For the estate, no: the value still counts towards Inheritance Tax.

Can children or other beneficiaries inherit the tax wrapper? No. They receive the proceeds from the estate, but the APS and any direct transfer into an ISA are available only to a spouse or civil partner.

What if the surviving spouse uses a different provider? A direct transfer of the investments is only possible with the same provider. Otherwise the investments are sold or paid out, and the spouse can use the APS to pay the proceeds into their own ISA elsewhere.

These accounts attract plenty of misconceptions: Five Stocks and Shares ISA Myths That Cost You Money covers the common ones, and What Happens When Your Investment Firm Fails explains the protections if the firm holding the account fails during administration.

Next steps

• ISAs Explained: Which Type Suits Your Savings Goal?, for how the different ISA wrappers work while the account holder is alive.
• What Happens When Your Investment Firm Fails, for the protections that apply if the provider collapses.
• Five Stocks and Shares ISA Myths That Cost You Money, for common misunderstandings about how these accounts really work.

Questions readers ask