Are ISAs Subject to Inheritance Tax?

ISAs are part of an estate and may be subject to Inheritance Tax. Learn how ISAs are taxed after death, IHT exemptions, and how to protect your ISAs.

Individual Savings Accounts (ISAs) provide tax-free interest, dividends, and capital gains during a holder’s lifetime. However, when the ISA holder dies, the ISA is no longer tax-free and may be subject to Inheritance Tax (IHT).

This guide explains what happens to ISAs after death, how they are taxed, and ways to protect ISAs from IHT.

What is IHT?

  • Inheritance Tax (IHT) is a 40% tax applied to estates worth over £325,000 when someone dies.

  • Anything above the £325,000 threshold is taxed at 40%, unless left to a spouse, civil partner, or charity.

  • The threshold can increase to £500,000 if passing a main residence to direct descendants.

ISA funds form part of an estate, so they may be taxed if the total estate exceeds £325,000.

What Happens to My ISA When I Die?

When an ISA holder dies, the ISA retains its tax-free status until:

  • The estate is settled or

  • Three years and one day after death (whichever comes first).

The ISA funds are passed to beneficiaries as part of the estate. However, if the total estate exceeds £325,000, the ISA’s value may be taxed at 40%.

What About a Spouse or Civil Partner?

  • If the ISA is passed to a spouse or civil partner, it remains tax-free under the Additional Permitted Subscription (APS) allowance.

  • The surviving partner can increase their own ISA limit by adding the deceased’s ISA value on top of their personal ISA allowance (£20,000 per year).

Are ISAs Exempt from Inheritance Tax?

Cash ISAs and Stocks & Shares ISAs are NOT exempt from IHT—they are included in the estate’s value. However, some special ISAs qualify for IHT exemptions:

  • AIM ISAs (invested in AIM-listed shares) may qualify for Business Relief, making them IHT-free after two years.

  • Certain Alternative Investment Market (AIM) stocks can be passed on without IHT if held for at least two years.

If you have a large ISA portfolio, consider investing in AIM-listed shares to reduce IHT liability.

How Do I Protect My ISAs from Inheritance Tax (IHT)?

Leave the ISA to a Spouse or Civil Partner

  • ISAs remain tax-free if inherited by a spouse or civil partner.

Use Business Relief (AIM Shares ISA)

  • Investing in AIM-listed shares may make the ISA IHT-exempt after two years.

Use a Trust for ISAs

  • Placing assets in a trust can help reduce IHT liability.

Spend or Gift ISA Savings

  • Gifting ISA funds (under the £3,000 annual exemption) reduces the taxable estate.

Charitable Donations

  • Leaving 10% of your estate to charity reduces IHT from 40% to 36%.

For large estates, consulting a financial advisor can help plan for IHT-efficient ISA management.

Are Payments Into a Junior ISA Subject to Inheritance Tax?

Junior ISAs (JISAs) are NOT directly subject to IHT, but contributions may be taxed if the donor dies within seven years. If a parent or grandparent gifts money into a JISA, it may be included in their estate for IHT purposes if:

  • The donor dies within 7 years.

  • The total gifts exceed the £3,000 annual exemption.

Junior ISAs are a tax-efficient way to save for children, but IHT implications should be considered for large contributions.

How Can You Manage ISAs Subject to Inheritance Tax?

  • Review your estate planning – If your ISA is taxable, consider ways to minimise IHT exposure.

  • Use the Additional Permitted Subscription (APS) for spouses – This lets widows/widowers inherit ISAs tax-free.

  • Reinvest in AIM-listed shares for IHT relief – Certain AIM ISAs qualify for 100% Business Relief after two years.

  • Speak to a financial advisor – Professional guidance helps manage large ISA portfolios efficiently.

Final Thoughts

  • ISAs are included in an estate and may be subject to Inheritance Tax.

  • Spouses/civil partners can inherit ISAs tax-free through the Additional Permitted Subscription (APS).

  • AIM ISAs and Business Relief investments may reduce IHT liability.

  • Junior ISAs are tax-free but can be counted towards IHT if gifted before death.

To protect your ISA from Inheritance Tax, speak to a financial advisor or visit GOV.UK Inheritance Tax Guide.