A Cash ISA Stops Being Tax-Free Unless You Claim the APS

When someone dies in the UK, their ISA does not lose its tax shelter overnight, and it does not simply vanish into the estate to be taxed like an ordinary savings account. For deaths since April 2018 the account carries on as what the rules call a continuing account of a deceased investor, keeping its protection from income tax and capital gains tax for a defined period while the estate is sorted out. That much is automatic.

What is not automatic is the second, more valuable part. As a surviving spouse or civil partner you are entitled to an extra ISA allowance, equal to the value of your wife's ISA, that lets you shelter the same amount in your own name on top of your normal allowance. It is called the additional permitted subscription, and it only exists if you claim it. Miss the deadline and it is gone for good.

So there are really two questions buried in "what happens to an ISA when someone dies", and they have different answers. What happens to her money is one thing — it is dealt with under her will like any other asset. What happens to the tax-free wrapper is another, and that is where a bit of paperwork on your part can be worth a great deal.

The short answer: the wrapper survives, the money still waits

Two things happen at once when an ISA holder dies, and keeping them separate is the key to understanding the whole subject. The first is that the cash or investments inside the ISA remain the deceased's property and pass under their will or the intestacy rules, exactly like a current account or a share portfolio would. The second is that the ISA's tax treatment is preserved for a while, so that gains and interest arising in the meantime are not suddenly taxable.

People conflate the two and end up disappointed. The continuing tax shelter is genuinely useful, but it does not make the money any easier or faster to reach. It cannot be spent, moved or inherited until the estate is administered, any inheritance tax position is dealt with, and the personal representatives release it. The wrapper protects the money from tax; it does nothing to protect the family from the wait.

What a "continuing account of a deceased investor" means

Under rules that apply to deaths on or after 6 April 2018, an ISA automatically becomes a continuing account of a deceased investor from the date of death. Inside that status, interest, dividends and growth stay free of income tax and capital gains tax just as they were in the holder's lifetime. No new money can be paid in, because the person who owned it has died, but the existing balance keeps its protection.

That protection is not open-ended. The account stops being a continuing account, and reverts to being taxable, on the earliest of three events: the completion of the estate's administration, the closure of the account, or the third anniversary of the death. Whichever of those comes first ends the shelter. If an account is still sitting open and unclaimed years later, its status will already have lapsed and the provider will have started treating the income as taxable.

We go into how that three-year clock runs, and what providers do at each stage, in how an ISA keeps its tax shelter for three years after death. The rules cover cash ISAs, stocks and shares ISAs and most other types, though a Help to Buy ISA sits in its own awkward position, which we cover in a Help to Buy ISA and a first home that will not happen now.

Source: HM Revenue & Customs and HM Treasury, ISA rules for deaths on or after 6 April 2018, gov.uk guidance on ISAs when the account holder dies.

The additional permitted subscription: the allowance you must claim

The additional permitted subscription, usually shortened to APS, is the part worth acting on. It gives a surviving spouse or civil partner a one-off extra ISA allowance on top of their own annual allowance. The size of it is equal to the value of the deceased's ISA — measured either at the date of death, or at the point the account stopped being a continuing account, whichever is higher. In practice it means you can shelter, in your own ISA, a sum matching everything your late spouse held in theirs.

The point that surprises people is that the APS is not tied to inheriting the actual money. You get the extra allowance even if the ISA funds themselves are left to someone else entirely, and even if you fund your new subscription from completely different savings. It is your allowance, granted because you were the spouse or civil partner, not a transfer of their account. Cohabiting partners, however close and however long together, do not get it — the entitlement is limited to marriage and civil partnership.

It is called an additional permitted subscription because it permits you to subscribe more than you otherwise could. It is not a payment, a windfall or a guarantee of anything. It is headroom in the tax system, and like all headroom it is only worth something if you use it.

How and when to claim it

You claim the APS from an ISA provider, not from HMRC and not from the executors. You can use the provider that held your spouse's ISA, or your own provider, as long as they accept these subscriptions — and here is the first snag, because not every provider does. Some decline APS transfers altogether, particularly on the investment side, so check with yours early rather than discovering a refusal as a deadline bears down on you.

The timing has two limbs, and they matter. For a cash subscription, you generally have three years from the date of death, or if longer, 180 days after the administration of the estate is completed. For an in specie transfer — moving the actual investments across rather than cash — the window is 180 days from the date the assets are distributed to you. Providers will ask for evidence of the death, the value of the deceased's ISA and your relationship, so keep the paperwork together.

There is also a choice in how you fund the new subscription, and it is worth understanding because it changes what you have to do. You can move the actual investments across untouched, which is the in specie route and keeps you invested in the same holdings, or you can subscribe cash up to the allowed amount from any money you like — the inherited funds, your own savings, or a mixture. The allowance is the same either way; only the practicalities and the deadline differ, with the in specie route running to the shorter 180-day window from distribution.

Practically, the sequence is: confirm your provider accepts APS, ask them for their APS claim form, establish the ISA's value from the deceased's provider, and submit within the window. Keep a note of the date the estate's administration is formally completed, because that is the event that can extend your cash deadline, and it is easy to let it pass unrecorded. If you are also chasing other assets that pass outside the estate, our guide to whether a joint account really passes straight to the survivor covers the parallel questions that come up at the same time.

What becomes taxable, and the inheritance tax position

Once the continuing-account period ends, the shelter is over. If the money has by then been paid out to a beneficiary, it simply becomes theirs to do with as they wish, and any future interest is taxed in their hands in the ordinary way. If the account is left open past the end of the period, the provider will start deducting or reporting tax on the income, because the ISA status has gone.

Inheritance tax is a separate calculation from all of this, and the ISA wrapper offers no protection against it. The balance counts as part of the deceased's estate for inheritance tax like any other asset. Where the ISA passes to a surviving spouse or civil partner, the spouse exemption normally means no inheritance tax falls on it at all — but where it passes to children or others, it joins the taxable estate. That is why the ISA can end up caught by the wider estate's tax bill and its deadlines; if the estate owes inheritance tax, the clock in what HMRC does in month seven when the tax is not paid applies to it as much as to anything else.

One honest caution: keeping money in an ISA has real tax advantages in life, but it does nothing to get money to your family quickly when you die, because it is locked inside the estate until administration finishes. If speed of payment to your family is what you are worried about, a life insurance policy written in trust does the opposite — it pays the people you have named directly, outside the estate. We explain that in why a life payout can be pulled into inheritance tax and how a trust prevents it, and you can get life insurance quotes to see what an FCA-authorised broker would arrange to sit alongside savings like these.

Scotland and Northern Ireland

ISAs are governed by UK-wide tax rules set by HMRC, so the continuing account and the additional permitted subscription work exactly the same whether the account holder lived in Cardiff, Belfast, Glasgow or London. There is no separate Scottish or Northern Irish version of the APS, and the deadlines do not change.

What differs is the estate around the ISA. In Scotland the estate is administered through confirmation rather than probate, and the timing of when "the administration is completed" — the event that can extend your APS window — is judged against that process. Scots law also gives children and a spouse fixed legal rights over the moveable estate, which includes cash and investments such as an ISA, and those rights can affect who ultimately receives the money; we set that out in how legal rights in Scotland let children claim against a will. For the full picture of settling an estate, see our guide to probate, the estate and inheritance tax.

Frequently asked questions

What happens to an ISA when someone dies?

For deaths since April 2018 the account becomes a continuing account of a deceased investor, keeping its tax advantages until the estate administration finishes, the account is closed, or three years have passed, whichever comes first. No new money can be paid into it during that time, and the balance itself still passes under the will or intestacy rules.

What is the additional permitted subscription?

It is an extra ISA allowance for a surviving spouse or civil partner, equal in value to the deceased's ISA holdings. It lets the survivor shelter the same amount in their own ISA on top of their normal annual allowance, and it applies whether or not they inherit the actual ISA money. It must be claimed from a provider rather than being granted automatically.

How long do I have to claim the extra allowance?

Generally three years from the date of death, or 180 days after the estate administration is completed if that is later, for a cash subscription. Not every ISA provider accepts these subscriptions, so check with yours early rather than discovering a refusal as the deadline approaches, and keep the evidence of the death and the ISA's value to hand.