What happens to my Stocks and Shares ISA when i die?

Thanks to helpful ISA rules, your spouse or civil partner can now inherit your ISA savings and thereby retain the valuable tax-free benefits of ISA savings built up by a loved one.

Since April 2018, when an investor dies, their ISA becomes a ‘continuing account of a deceased investor’ or a ‘Continuing ISA’ (this does not apply to Junior ISAs).

What happens to my ISA when I die?

When you die, your Stocks and Shares ISA will become a ‘continuing ISA’ for a limited amount of time. The continuing ISA will remain open until the administration of your estate is completed, or the ISA is closed by your executor.

However, if neither of the above happens within three years and one day from your death, your ISA provider will close it.

Your ISA can continue to grow and retain its tax benefits prior to being closed, but no one will be able to contribute more money to the ISA during this time.

ISA inheritance rules vary depending on whether you leave the assets in your ISA to your spouse/civil partner or to a friend or family member.

Can my Spouse Inherit my Stocks and Shares ISA?

Since April 2015, your spouse or civil partner can inherit the value of your Stocks and Shares ISA through an ‘additional permitted subscription’ (APS). This means that they will have a one-off, additional ISA allowance that is equivalent to the value of your ISA when you died or the day your ISA is closed.

An example of this would be:

You passed away leaving an ISA worth £50,000, your spouse and partner would still have their own annual ISA allowance of £20,000 for the 2019/2020 tax year but they will also have an Additional Permitted Subscription of £50,000 for inheriting your ISA.

If you have a Stocks and Shares ISA worth £70,000 on the day that you die, it could grow or decrease in value during the time that your estate is being processed.

An example of this would be:

• Your Stocks and Shares ISA increases by £600 while your estate is being processed – your spouse or civil partner could apply for an APS of up to £70,600.

• Your Stocks and Shares ISA decreases by £600 while your estate is being processed – your spouse or civil partner will still be entitled to an APS of up to £70,000 (the value of your ISA when you died).

Be aware, these rules do not automatically entitle the surviving spouse or civil partner to the underlying assets of the ISA. They may only definitely get the assets if they are specifically left to them in your will.

There are two ways for your spouse or civil partner to use their inherited APS:

1. Cash transfer – all investments such as funds and shares could be sold, and the resulting cash transferred to a new provider who has a Cash ISA.

2. In specie transfer – investments can be transferred directly without being sold.

ISA providers do not have to accept APS allowances as transfers, so make sure that you do careful research to determine which providers will accept inherited savings.

Can I leave my Stocks and Shares ISA to a friend or family member?

You can choose to leave your ISA value to a friend or family member, other than your spouse or civil partner, in your will. However, the ISA tax wrapper will no longer exist, and any income earned will be subject to normal tax rules. Also, if the beneficiary chooses to sell the assets, they will be subject to capital gains tax from the valuation at the date of death.

What about inheritance Tax?

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who has died. The standard inheritance tax rate is 40% but will only be charged on the part of your estate that is above the threshold of £325,000.

If the value of your estate is below the £325,000 threshold, there is normally no Inheritance Tax to pay, but you will still need to report the estate’s value to HMRC.

You may not have to pay inheritance tax if you leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club.

The threshold can increase to £500,000 if you give away your home to your children or grandchildren and the estate is worth less than £2 million.

If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die. This means their threshold can be as much as £950,000.

ISAs form part of the deceased taxable estate. If the ISA is left to a friend, family member, or anyone other than a spouse, it may be subject to Inheritance Tax.

To find out what kind of costs your loved ones might have to handle if you died, see our Guide to End-of-Life Expenses.