ISA - Death and additional permitted subscriptions

What happens when an individual with an ISA dies? 

When an individual with an ISA dies, their savings can continue to benefit from the tax advantages of an ISA from the period beginning on the individual’s death and ending on the earlier of: 

• The completion of the administration of their estate. 
• The third anniversary of their death.  
• The closure of the ISA.  

This is referred to as a ‘continuing account of the deceased’ or simply, the ‘continuing account’.  

In practice, the last option is the most common. It happens when the ISA manager receives instructions from the executors and the ISA manager then transfers the funds or assets to the beneficiaries. This will reduce the account balance to nil. 

For an ISA holding qualifying insurance policies (an ‘insured’ ISA), the rights under an insurance policy held within the ISA transfers to their personal representatives. The policy must pay out upon the individual’s death, and it is important that the personal representatives act promptly to make the claim. 

If there is a delay in settling a life insurance claim and interest is credited to a continuing account, the insurer (may be different from the ISA manager) should not deduct tax from that interest. However, if the death benefit is held outside the ISA while awaiting claim settlement, any interest paid by the insurer should be subject to basic rate tax deduction. 

Check if a life insurance policy can be included in an investor's ISA

What happens to an ISA on death? 

When the individual with the ISA dies, the ISA becomes a continuing account, but no new subscriptions can be made into it. The ISA doesn’t transfer automatically to a spouse or civil partner. However, the spouse/civil partner may receive an extra ISA allowance called an additional permitted subscription – see What is an Additional Permitted Subscription? below for more information on this. 

For the continuing account, the following apply: 

• Any subscriptions made to an ISA after the date of death must be withdrawn, along with any associated interest earned on those subscriptions.
• Active management of the investments already held within the ISA may continue subject to its terms and conditions.
• Any interest payments made during this period will not be liable to tax and can be credited without deduction of tax.
• If the death proceeds are held outside of the continuing account, any interest payments will be liable to tax. 
• The ISA will not transfer automatically to the surviving spouse/civil partner.
• A surviving spouse or civil partner will receive an additional ISA allowance. This is on top of their own annual ISA allowance and is called an additional permitted subscription.

Who can invest in an ISA if you're an ISA manager

What is the tax on an ISA after an individual passes away? 

In addition to the tax situation detailed in the section above, the ISA value is included in the individual’s estate for inheritance tax on the individual’s death.

What is an additional permitted subscription? 

An Additional Permitted Subscription (APS) allows the surviving spouse or civil partner of the deceased to make an extra ISA subscription(s), over and above the standard annual subscription limit, up to a value at either:  

• their date of death, or 
• the point the ISA ceased to be a continuing account. 

The following rules apply for APS: 

• The surviving spouse or civil partner must have been living with the deceased at the time of death. They must not have been separated:
  • under a court order
  • under a deed of separation
  • in circumstances where the marriage or civil partnership has broken down.
• The APS does not have to be made to the ISA manager who held the deceased’s ISA. The surviving spouse or civil partner can choose another ISA manager. However, once an APS subscription has been made, any further contributions within the APS allowance must be made with the same ISA manager.
• Can be made in cash or inherited non-cash ISA assets into stocks & shares/innovative finance ISAs. Though this wouldn’t apply to any insurance policies. 
• The APS is available whether or not the surviving spouse inherited the deceased’s ISA assets.
• The APS can be used by non-UK residents, though ISA Managers can choose to restrict applications to UK residents only.
• The APS is treated as being ‘previous year subscriptions’ and does not affect any subscriptions made in the same year. 
• The restrictions on how much can be paid in and by whom to a lifetime ISA still apply   

 ISA managers don’t have to accept additional permitted subscriptions. 

What is the time limit to use the APS? 

When making cash subscriptions, the APS must be used within: 

• three years after the date of death, or 
• if later, 180 days after the administration of the estate is complete. 

For in specie transfers, it’s within 180 days of the beneficial ownership passing to the surviving partner.  

How to manage additional permitted subscriptions - time limits