What Happens to My ISA When I Die? UK Rules Explained

What Happens to Your ISA Immediately After Death?

When an ISA holder dies, the ISA does not close immediately. Instead, it becomes a “continuing account of a deceased investor” — a status introduced by HMRC that preserves the tax-free wrapper during estate administration.

During this period, the ISA retains its full tax advantages. No income tax is due on dividends or interest earned within the wrapper, and no capital gains tax applies to any growth. This protection lasts until the earlier of:

• The completion of the estate administration (when assets are distributed to beneficiaries), or
• Three years after the date of death

Once administration is complete or the three-year window closes, the ISA ceases to exist. Any assets still held are transferred out of the wrapper and become part of a General Investment Account (GIA), where future growth and income are taxable in the normal way.

This matters for FIRE investors with large ISA portfolios. A £500,000 ISA generating £10,000 per year in dividends remains fully sheltered during administration — but the moment it leaves the wrapper, those dividends become taxable income for the beneficiary.

How Does the Additional Permitted Subscription (APS) Work?

The Additional Permitted Subscription is the mechanism that allows a surviving spouse or civil partner to effectively “inherit” the deceased’s ISA allowance. It was introduced in April 2015 for Cash ISAs and extended to Stocks and Shares ISAs from April 2018.

Here is how it works in practice:

1. The ISA holder dies with, say, £400,000 in their Stocks and Shares ISA
2. The surviving spouse receives an APS allowance equal to £400,000
3. This allowance is in addition to the surviving spouse’s own £20,000 annual ISA allowance
4. The surviving spouse can subscribe up to £400,000 into their own ISA using the APS — with any provider, not necessarily the deceased’s provider
5. The APS must be used within three years of the date of death, or 180 days after administration is complete — whichever is later

Crucially, the surviving spouse does not need to inherit the ISA assets themselves to use the APS. They receive the APS allowance regardless of who the ISA assets go to under the will. The APS is based on the value of the deceased’s ISA — it is an allowance, not a transfer of actual holdings.

For a married FIRE couple with substantial ISAs, this is a significant benefit. If one partner dies with £600,000 in their ISA, the surviving partner can shelter an additional £600,000 in their own ISA on top of the normal £20,000 annual allowance — preserving a large chunk of the household portfolio’s tax-free status.

Who Can and Cannot Inherit the ISA Tax-Free Status?

The APS benefit is strictly limited. Only a surviving spouse or civil partner can receive the additional ISA allowance. Here is how different beneficiaries are treated:

This distinction is particularly important for unmarried couples. Two partners who have lived together for decades but are not married or in a civil partnership have no APS rights and no spousal exemption from inheritance tax. For FIRE couples with large ISA portfolios, this is a strong financial argument for marriage or civil partnership — purely from a tax and estate planning perspective.

How Do ISAs Compare to Pensions on Death?

ISAs and pensions are treated very differently on death. Understanding the distinction is essential for FIRE drawdown strategy — particularly the question of which account to spend from first in retirement.

The traditional FIRE wisdom has been “spend ISA first, preserve pension” — because pensions sit outside the estate for IHT while ISAs do not. This makes the pension a more efficient vehicle for passing wealth to the next generation.

However, from April 2027, unused pension funds will be brought into the estate for IHT purposes. This change significantly narrows the gap between ISAs and pensions on death. FIRE investors should revisit their drawdown order in light of this change — the pension is losing its IHT advantage, making the decision between spending ISA or pension first more nuanced. See our guide to the 2027 pension IHT changes for a full breakdown.

What Should FIRE Investors Do About ISA Estate Planning?

Most FIRE investors focus intensely on accumulation and drawdown — but estate planning is the part that protects what you have built. Here are the practical steps:

1. Make sure your spouse or civil partner knows about the APS. Many people are unaware this benefit exists. If your partner does not claim it within the deadline, the allowance is lost permanently. Write it down somewhere accessible.
2. If you are in an unmarried partnership, consider the financial implications. Marriage or civil partnership gives spousal exemption from IHT (potentially saving 40% on everything above the nil-rate band) and grants APS rights. For a couple with £500,000 in ISAs, this is not a trivial consideration.
3. Write a will. ISAs pass through your estate and are distributed according to your will (or intestacy rules if you do not have one). Intestacy rules in England and Wales give the first £322,000 to a spouse and half the remainder — the rest goes to children. This may not match what you intended.
4. Understand the IHT position. ISAs count towards your estate. For 2025/26, the nil-rate band is £325,000 (rising to £500,000 with the residence nil-rate band if you leave your home to direct descendants). A couple can combine their allowances for up to £1,000,000 IHT-free. Anything above this is taxed at 40%. See GOV.UK inheritance tax guidance for current thresholds.
5. Review your drawdown order post-2027. With pensions entering the IHT net from April 2027, the “spend ISA first” rule becomes less clear-cut. Consider whether preserving ISA (with APS for spouse) or pension makes more sense for your specific family situation.

Frequently Asked Questions

Work Out Your Own Numbers

See how your ISA fits into your overall FIRE strategy and drawdown plan:

• ISA vs SIPP Calculator — compare the tax treatment, access age, and inheritance implications of ISA and SIPP for your situation
• ISA Millionaire Calculator — see how your ISA contributions compound over time and what your portfolio could be worth