Can you inherit an Isa?

Can I inherit an Isa?

If your spouse or civil partner dies, you'll probably be able to inherit their Isa savings through an 'inherited Isa allowance', also known as an 'additional permitted subscription' (APS).

This means the surviving spouse has a one-off additional Isa allowance that's equivalent to the value of the deceased partner's Isa when they died.

So, if someone's spouse passes away leaving an Isa worth £40,000, the surviving partner will not only have the £20,000 Isa allowance that's open to everyone in the 2024-25 tax year (plus a £5,000 allowance for the yet-to-be-launched UK or 'British' Isa), they'll also have an additional allowance - or additional permitted subscription - of £40,000 for inheriting their spouse's Isa.

These rules have only been in place since April 2015. Previously, Isa savings could be passed on to beneficiaries named in your will or through the laws of intestacy if you die without a will, but automatically lost the tax-efficient 'wrapper' they enjoyed during your life.

That meant that if your spouse wanted to reinvest the savings you built up, they could only do so up to their maximum Isa allowance for that year.

How are Isa allowances inherited?

The additional Isa allowance can be used by the spouse or civil partner, regardless of what the deceased person states in their will. This inherited extra allowance is a separate thing from the money left behind in the deceased person's Isa.

This means that even if the money itself is left for someone else to inherit, such as a child or another relative that isn't the person's spouse, the partner is still entitled to an increased allowance equivalent to the value of the Isa assets.

So, if you left £50,000-worth of Isa assets to your child, your partner would still be entitled to an increased Isa allowance of £50,000, although they would be using their own money to fund it if they wanted to pay that much into an Isa.

What if the Isa grows in value after death?

Since 2018, all types of Isa (except Junior Isas) turned into a 'continuing account of a deceased investor' or a 'continuing Isa', so that any growth remains tax-free.

So, if a deceased person's Isa savings aren't transferred to their spouse for, say, three months, and they receive £300 in interest, rather than the spouse losing out on the interest that's been accrued, now that makes up part of the additional subscription.

Before this tweak to the rules, the APS allowance was frozen at the value of the deceased's Isa at the time of death. This meant that any growth became taxable during the probate process, which can take months or even years depending on the complexity of the estate.

This rule change means that the APS allowance is now equal to the value of the money passed on, or the value at death, whichever is higher.

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Is there a time limit for additional Isa subscriptions?

To give people time to sort out the affairs of a deceased person, the increased Isa allowance can be claimed by filling out an application form and is available for three years after the date of death. If administering the estate takes longer than three years, the deadline is 180 days after the estate has been administered.

These rules came into force in 2018, and mean that no money can be paid into the deceased's Isa during administration, but it will continue to benefit from its tax-free status and any growth remains tax-free too.

This status - known as a 'continuing Isa' - lasts until either the administration of the estate is complete, the Isa is closed, or three years have passed since the person's death (whichever is soonest).

• Find out more: How to make a will 

Where can I invest the Isa savings I've inherited?

The surviving partner can choose where to transfer the inherited savings. They can:

• keep the money with the original Isa provider
• put the money with their own Isa provider
• open up a new cash Isa or stocks and shares Isa and place the additional subscription there.

An APS allowance can only be transferred once, but if there is more than one Isa to inherit you'll have an allowance with each provider.

Under the Isa rules, you can only open and pay into one cash Isa and one stocks and shares Isa per tax year. However, you won't breach these rules if you open up an Isa for the sole purpose of transferring inherited savings.

So, you could have some money in your own cash Isa with one bank, and place the Isa savings you've inherited with another bank.

Once the transfer has been made, the normal Isa rules apply and the money is treated as if it was previous years' subscriptions.

Do Isa providers have to accept APS payments?

No, they don't, so you may not be able to deposit inherited savings with the provider of your choosing.

Which? analysed Moneyfacts data in March 2023 and found that 23% or 111 of the 485 fixed and variable-rate cash Isas on the market will accept APS cash Isa and/or stocks and shares Isa transfers.

A few providers offer products specially designed for APS payments, shown in the table below.

However, some of these accounts will only accept APS payments if the deceased Isa holder was a customer with them. Others ask beneficiaries to open an inheritance Isa solely for this purpose.

Specialist 'Inheritance Isa' providers compared

The table below shows the providers with products specifically designed for APS payments. The details are correct as of March 2023.

What happens when you inherit a stocks and shares Isa?

Stocks and shares Isas are treated in the same way as cash Isas, with surviving spouses entitled to make additional subscriptions into either a stocks and shares Isa or a cash Isa.

There are two ways for a surviving partner to use their inherited stocks and shares allowance:

• Sell investments for cash: all investments - such as funds and shares - could be sold, and the resulting cash can be used to open a new Isa. This is known as a 'cash transfer'.
• Transfer investments as they are: investments can be transferred directly without being sold. This is known as an 'in specie' transfer.

Additional subscriptions made via an 'in specie' transfer must be made within 180 days of the surviving partner inheriting the funds and can only be made to the deceased Isa provider.

• Find out more: What is a stocks and shares Isa?

Inheriting an Isa: FAQ

We've answered some of the most common questions about inheriting an Isa below.