Defined contribution pensions and inheritance tax: what changes from 6 April 2027
This guide covers cash ISAs, stocks and shares ISAs, Innovative Finance ISAs and Lifetime ISAs. It explains what the executor does, what a surviving spouse can claim, and how inheritance tax applies. Junior ISAs are covered further down.
What is the Additional Permitted Subscription allowance?
The Additional Permitted Subscription allowance, usually shortened to APS, is a one-off extra ISA allowance given to a surviving spouse or civil partner, equal to the value of the deceased's ISAs. The surviving spouse receives it regardless of who inherits the money.
It is an allowance, not a payment, and it exists so the couple's savings can stay inside a tax wrapper.
Annual ISA allowance: £20,000 for the 2026/27 tax year, unaffected by a death (GOV.UK)
APS allowance: equal to the value of the deceased's ISAs, on top of the £20,000
Number of APS allowances: one for each provider the deceased held an ISA with
Who qualifies: the spouse or civil partner living with the deceased at the date of death and not legally separated
Transfers: each allowance moves in full to a provider of the survivor's choice, never in part
A person who held ISAs with 3 different providers leaves the surviving spouse 3 separate APS allowances. Separation because of care, for example one of the couple living in a care home, does not disqualify the survivor.
Can you inherit an ISA?
You can inherit the money in an ISA, but not the ISA wrapper, unless you are the surviving spouse or civil partner using an APS allowance. Two separate things happen after a death.
The first is the money. It follows the will, or the intestacy rules if there is no will. If the ISA is left to the spouse, the spouse inherits the cash or the investments. If it is left to someone else, they do not.
The second is the APS allowance, which goes to the surviving spouse whatever the will says. A person who left their ISA to their children gives the children the money and gives the spouse an APS allowance of the same value.
A surviving spouse who inherits the investments themselves can ask for an in specie transfer, which moves the holdings across without selling them. An in specie transfer is only possible where the surviving spouse uses the same provider as the deceased.
How long does an ISA stay open after someone dies?
An ISA stays open for up to 3 years and 1 day after the date of death. From the date of death, the ISA is treated as a continuing account of a deceased investor, which keeps the money free of income tax and capital gains tax for up to 3 years and 1 day.
No new money can be paid in during that period. The account closes at the earliest of three points.
The executor closes it: at any time during the administration of the estate
The administration of the estate is completed: the ISA closes at that point
3 years and 1 day pass from the date of death: the provider closes the account on the third anniversary plus one day and pays out under the will or the intestacy rules
Before April 2018, ISAs lost their tax wrapper on the date of death, which often created a tax bill for beneficiaries during a long probate. The continuing ISA rule fixed that.
How long do you have to use the APS allowance?
You have 3 years from the date of death to use an APS allowance, or 180 days from the completion of the estate administration, whichever is later. The deadlines and valuation rules are set out below.
Cash subscriptions: 3 years from the date of death, or 180 days from completion of the estate administration, whichever is later
In specie transfers: 180 days from the date the ISA assets are distributed to the surviving spouse (HMRC ISA Guidance Notes for ISA Managers, GOV.UK)
Where cash subscriptions can go: a cash ISA, a stocks and shares ISA, or an Innovative Finance ISA
Valuation basis: the higher of the ISA value on the date of death or its value when the continuing ISA closes
Part transfers: not permitted, each APS allowance is transferred in full or not at all
The surviving spouse chooses which valuation to use, so closing the ISA later can produce a larger allowance if the investments have grown. There is no legal rush to close an ISA, and closing a stocks and shares ISA early in a rising market can cost both the estate and the APS allowance real money.
Is an ISA subject to inheritance tax?
Yes. The value of the deceased's ISA is added to the estate for inheritance tax purposes. Keeping the tax wrapper is not the same as keeping the money out of the estate.
As of August 2026, the nil-rate band is £325,000, frozen until 5 April 2031 (GOV.UK). An estate worth more than the inheritance tax threshold can pay inheritance tax on the ISA in the usual way, and the date-of-death figure from the provider is the number that goes into how to value an estate for probate.
AIM shares held inside a stocks and shares ISA could qualify for Business Property Relief once held for 2 years, and that relief has been reduced. From 6 April 2026, qualifying AIM shares attract 50% Business Property Relief rather than 100%, creating an effective 20% inheritance tax charge on those holdings. If the estate you are administering includes AIM shares inside an ISA, flag this to a probate solicitor early.
What happens if someone other than a spouse inherits the ISA?
Children, siblings, friends and other beneficiaries inherit the value of the ISA, not the ISA wrapper. The money loses its tax-efficient status once it leaves the continuing ISA, and there is no APS allowance available to anyone other than a spouse or civil partner.
A beneficiary can shelter inherited money inside their own ISA, but only within their own allowance of £20,000 per tax year, which is a slow route for a substantial inheritance. Nothing is paid out until the estate is ready to distribute, which usually means waiting for the grant, and what is probate explains when one is needed.
What does the executor need to do with the deceased's ISAs?
The executor finds every ISA, notifies each provider, obtains a date-of-death valuation, decides how the money is held during the administration, confirms any APS value, then closes or transfers the account.
Find every ISA: statements from the last 12 months usually reveal interest payments and dividend credits that point to forgotten accounts
Notify each provider: most bereavement teams accept a scanned death certificate at first and ask for a certified copy later
Get a date-of-death valuation: for a stocks and shares ISA the provider calculates a probate value that goes into the estate accounts
Decide how the continuing ISA is held: the executor can leave the investments in place or ask the provider to sell and hold the money as cash
Confirm the APS value: the provider issues a valuation certificate, or its own equivalent, that the surviving spouse needs in order to use the allowance
Close or transfer on completion: cash to the beneficiaries, or an in specie transfer to the surviving spouse's own ISA
Some ISA providers want sight of the grant of probate before releasing funds above a threshold. This threshold varies by provider, from around £5,000 at NS&I to £50,000 at Hargreaves Lansdown. The same range applies to what happens to a bank account when someone dies.
The deceased may have held ISAs with high-street banks, building societies and investment platforms. For accounts lost track of years ago, My Lost Account covers dormant cash ISAs with UK banks and building societies, though not stocks and shares ISAs held with investment platforms.
Ask each bereavement team for four things in one call: the documents they need, a date-of-death valuation, whether the ISA will hold investments or cash during the administration, and the APS valuation and transfer process. Some providers will only speak to the executor named in the grant of probate, which is one of the hurdles behind what an executor of a will does.
What happens to a Lifetime ISA or Junior ISA when someone dies?
A Lifetime ISA on death is treated like any other ISA, and the 25% withdrawal charge that normally applies to unauthorised withdrawals does not apply on death. The funds form part of the estate, and a surviving spouse or civil partner gets an APS allowance of the same value.
A Junior ISA belongs to the child, not the parent, so it does not form part of a parent's estate. If the child dies, the money forms part of the child's estate but does not transfer as an inheritable ISA, and no APS allowance applies.
A Help to Buy ISA is treated like a cash ISA on death, and an APS allowance applies. Help to Buy ISAs are no longer available to new savers, but many existing accounts remain open.
Frequently asked questions
Yes. Interest and investment returns inside a continuing ISA stay free of income tax and capital gains tax from the date of death until the account closes, for up to 3 years and 1 day. No new money can be paid in during that period. Once the account closes, later returns sit outside the wrapper.
It depends on the provider and the amount. Some ISA providers release funds on the strength of a death certificate alone. Others want sight of the grant of probate before releasing funds above a threshold. This threshold varies by provider, from around £5,000 at NS&I to £50,000 at Hargreaves Lansdown. Ask the bereavement team for its threshold first.
No. The Additional Permitted Subscription allowance sits on top of the standard annual ISA allowance of £20,000 for the 2026/27 tax year, not instead of it. A surviving spouse can pay in their own £20,000 and the full value of the deceased's ISAs in the same tax year.
No. The Additional Permitted Subscription allowance is only available to a surviving spouse or civil partner who was living with the deceased at the date of death and was not legally separated. An unmarried partner who inherits an ISA receives the money without the tax wrapper and gets no extra allowance.
Inheritance tax is charged on the estate rather than on the beneficiary, so a beneficiary receives no separate tax bill for the ISA value paid to them. Once the money leaves the continuing ISA it loses its tax-efficient status, so later interest or growth is taxable unless it goes into the beneficiary's own ISA.
This article is for general information only and does not constitute legal advice. Individual circumstances vary. If you are dealing with an estate, consider taking advice from a solicitor who specialises in probate. For other guidance specific to your circumstances, speak to a funeral director, Citizens Advice, or a regulated financial adviser.