The rules on inheriting ISAs

What are the rules on inheriting ISAs?

If your spouse or civil partner dies, in most cases you’ll be able to inherit their ISA savings through an Additional Permitted Subscription (APS), also known as an inherited ISA allowance. Any ISA funds transferred as an APS keep their tax-free status and count as a one-off ISA allowance that's granted to the surviving spouse or civil partner for that tax-year only.

The rules mean that the tax-efficiency of the deceased’s ISA won’t be lost, allowing the bereaved to enjoy the tax advantages they previously shared with their partner.

Who can inherit an ISA?

In order to inherit an ISA and receive the full tax advantages of the APS, you must be:

• Married or in a civil partnership with the deceased, and
• Living with the deceased at the time of death

Provided these two factors apply, you can make a claim for an ISA transfer on death. If you’re separated, whether by court order, deed of separation or where the marriage or partnership has completely broken down, the APS does not apply.

However, other people can inherit the value of an ISA too, provided they’re named as the beneficiary. The difference is that the APS won’t apply, which means the funds will be given in cash and will lose their tax-free wrapper, and inheritance tax may come into play. This is particularly worth bearing in mind for children who inherit an ISA from a parent.

Note that even if the deceased leaves the money in their ISA to someone else, the surviving partner is still entitled to an increased allowance for that tax-year, again equivalent to the value of the ISA assets.

Where can I invest an inherited ISA allowance?

An inherited ISA allowance can be made into:

• Cash ISAs
• Stocks and shares ISAs
• Innovative Finance ISAs (which allow the holder to make investments via peer-to-peer lending in a tax-free wrapper)

You can also use the APS to invest in a Lifetime ISA (LISA), but the rules are slightly different. You’re still only able to deposit up to £4,000 a year into the LISA, but if you use the APS, the £4,000 value will be restored to your inherited allowance for you to use elsewhere.

How do I claim an inherited ISA?

An inherited ISA covers both when your spouse or civil partner has specifically left you an ISA in their will, and when you’ve inherited it by being their next of kin (spouses will automatically inherit the ISA unless someone else has been named as a beneficiary). In order to claim it, you’ll need to contact the ISA provider and inform them that the account-holder is deceased, and that you want to make a claim.

You’ll need to complete an application form and provide:

• The deceased’s full name
• Their permanent residential address at the date of death
• The deceased’s date of birth and date of death
• Their National Insurance number (if known)
• The date that your marriage or civil partnership took place
• If relevant, the identity of the account provider who managed the deceased’s ISA.

You’ll also be required to declare that you are the surviving spouse or civil partner of the deceased, and that you were living with them at the time of their death. Note that if your partner had more than one ISA, you’ll need to apply for an APS from each individual provider. Your full APS amount will then be the value of each ISA pot combined.

When can I claim an inherited ISA?

You must apply for an APS within certain time limits. These are:

• Within 180 days of beneficial ownership passing to the surviving spouse or civil partner for ‘in specie’ transfers (where investments are moved without selling them first)
• Within three years of the date of death for cash subscriptions
• If later than three years, within 180 days of the completion of the administration of the estate.