No one enjoys thinking about the possibility of a loved one passing away. But, it’s important to make sure there’s a strategy in place to prepare for the inevitable, and protect your savings.  If a person dies, and their Independent Savings Account (ISA) is left unmanaged by a benefactor, the provider will close the account 3 years and 1 day after the account holder passes. Once the account is closed, the money within it will be subject to taxation, cease to earn interest, and it may become harder to claim any benefit from the savings. In 2015, a re-evaluation of the law surrounding ISAs ensured that surviving spouses can benefit from their partner’s savings after they pass away through the inheritance ISA allowance. Learn everything you need to know about inheriting an ISA, the inheritance ISA allowance, and how to ensure your spouse’s financial future is protected, below. Man in a blue shirt stacks coins on a white table.

What happens to my ISA if I die?

When you pass away, your ISA can be passed on to any beneficiaries named in your will, or if you don’t have a will, through the laws of intestacy. If there is not a will in place, and no one claims the inheritance tax allowance, your ISA provider will close your account 3 years and 1 day after you die. Either way, your ISA investments will be administered to your estate and be liable for Inheritance Tax.

What is an inheritance ISA allowance?

Inheritance ISA allowance, otherwise known as an Additional Permitted Subscription (APS), is an addition to the annual ISA allowance you already receive. It means that you can benefit from paying less tax on your savings. This allowance doesn’t mean you will automatically inherit the sum of money in your partner’s ISA, but you will inherit an additional, one off extra ISA allowance. The amount of the extra allowance will depend on, and be equal to, the value of your partner’s ISA. Example: if your partner has £10,000 saved in an ISA, and they pass away, you will be automatically entitled to save an additional £10,000 on top of your £20,000 ISA allowance.

How is inheritance ISA calculated?

Inheritance ISA is calculated by the amount that your partner has stored in their ISA(s). Any ISA in your partner’s name – be that cash ISAs or stocks and shares ISAs – will count towards the sum of your inheritance ISA allowance. If you choose to close the ISA upon your spouse’s death, you can inherit an ISA allowance equal to the value of their account at the date of closer. However, as of 5th April 2018, you have the option to let your spouse’s ISA remain open as a ‘continuing ISA’, whereby the account can continue earning interest. You can then inherit an ISA allowance at the value of your spouse’s ISA once you decide to close it.

A small green plant is growing from a pot filled with coins.What is a continuing ISA?

If an ISA investor passes away, and the account is reclassified as a continuing ISA by a spouse, it will continue to benefit from tax advantages. No money can be paid into the ISA after the time of death, but any money already present will remain tax-free.

What information is required to receive an inheritance ISA allowance?

Before you can benefit from an inheritance ISA allowance, you must provide the following information to your bank, building society, or ISA provider within 3 years of your spouse’s death:
  • Officially recognised evidence of marriage of civil partnership
  • Your partner’s date of birth
  • Your partner’s death certificate
  • Proof of your spouse’s address at the time they passed away
  • Both yours and your partner’s National Insurance number

Can I put my ISA into a trust?

No. ISAs can only be held by one individual, whereas, trusts are held by a legal entity.It would be possible to sell your ISA assets, and then put the takings into a trust, but you cannot transfer ISA savings into a trust.

How can I protect my ISA savings?

If you want to ensure that your wealth is passed down as you would like, you can protect your ISA savings from inheritance tax, but not without considerable investment risk. One option available to you, if your estate is large enough to be subject to IHT, is investing your ISA savings into an AIM stocks and shares ISA portfolio AIM portfolios are built and managed by a professional manager. Wills, Tax and Trusts Group does not advise that this information alone be used as a financial strategy by individual investors. To find out more about inheritance ISAs, estate administration, and AIM stocks and shares portfolios, get in touch with one of our accredited financial advisors today for professional advice.

More About Us

At Wills, Tax & Trusts, our expert advisors offer a range of services to aid in your wills, tax, and trust planning. With years of experience in the industry, we can help you determine the right steps for you.

Don’t wait for a life-altering event to prompt you into action – check out how well your family is protected by viewing our free video TODAY!

Picture of Ray Best

Ray Best

Like his academic development, writing came late to Ray. He has written several published works, “Inheritance Tax Planning – My Way” and “Shareholder Protection & Partnership Protection” and has had four feature articles published in Tax Adviser magazine, but the publication he is most noted for is the joint collaboration with Tony Granger “Inheritance Tax Simplified”.

Read More