What Happens on the Death of an ISA Holder

Here, we take a look at what happens on the death of an ISA holder and a special allowance that is available to married couples and civil partners on first death. This is useful reading as part of your preparation for the CII R02, R03, AF1, R06, or AF5 exams.

This article is correct as at 21 November 2023.

Continuing ISA

On death, an ISA becomes a continuing ISA of the deceased.

No further funds can be added, but any income and gains remain tax-free up until the earlier of:

• the estate being administered;
• the continuing ISA being closed; or
• three years and one day from the date of death.

However, while income and gains will remain tax-free, the ISA itself will form part of the deceased’s estate for inheritance tax (IHT) purposes.

For stocks and shares ISAs, the ISA provider can be instructed to either:

• sell the investments and pay the proceeds to the administrator or beneficiary of the estate; or
• transfer the investments to the surviving spouse’s or civil partner’s ISA; however, this is only possible if they have the same ISA provider as the deceased. 

Additional Permitted Subscription

If an ISA holder was in a marriage or civil partnership at the date of their death, their ISA benefits can be passed on to their surviving spouse or civil partner via an additional ISA allowance.

This means the surviving spouse or civil partner will be allowed to invest as much as their spouse or partner used to have, in addition to their own annual ISA limit.

The actual additional permitted subscription is the higher of the value of the continuing ISA on

• death; or
• on the date when the ISA wrapped investments were passed on.

The APS is independent of the deceased’s actual ISA holdings. This means that if the deceased’s cash and investments are left to a beneficiary other than their surviving partner, say, then the surviving partner can still use their own resources to fund the APS allowance. 

Important Time Limits

Any cash subscriptions must usually be made within three years of the date of death. However, if the administration of the estate takes longer than three years from the date of death, you’re allowed to make cash subscriptions to your APS allowance within 180 days of completion of the administration of the estate.

If you inherit the ISA investments and you want to use them to fund your APS allowance, you can do so by transferring them in-specie. This means you don’t have to sell and re-buy them within the ISA. However, the time limit for this is within 180 days of ownership of the investments passing to you.

And finally

Remember, this is an additional allowance, on top of an individual’s usual £20,000 a year. They will still have their own annual ISA allowance. The APS allowance works independently and can be used with the same ISA provider or a different one.

Grab the resources you need!

If you’re studying for your CII R03 exam, and you don’t want to waste precious time figuring out the calculations, you’ll need to be well prepared. Grab our free taster to try out one of Brand Financial Training’s calculation workbooks for yourself.  Click the link to download the R03 calculation workbook taster now!

Alternatively, you can download a taster for AF1, AF5, R02, or R06 if you’re revising for any of those exams.