What happens to my ISA when I die?
After you die, your ISA becomes 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; or
If neither of these two things occurs within three years and one day from your date of death, your ISA provider will close it.
Prior to the ISA being closed, it can continue to grow, and it retains its tax benefits. While no one can contribute more money to the ISA during this time, any further growth or returns aren’t subject to income tax and capital gains tax. However, as your ISA forms part of your estate, it is subject to inheritance tax.
You can leave your ISA to whomever you wish in your will.
If you have a stocks and shares ISA, your executor can instruct your ISA provider to either sell the investments and pay the cash proceeds to the administrator or your beneficiary, or the investments within the ISA can be transferred without being sold.
Are ISAs subject to inheritance tax?
ISAs are subject to inheritance tax, just like any other asset.
If you leave your ISA to anyone other than a spouse or civil partner, and your estate is worth more than £350,000 – the current inheritance tax limit – they’ll have to pay inheritance tax.
However, if you leave your ISA to your spouse or civil partner, they won’t pay inheritance tax; this is the same for all your assets.
But that’s not all.
Your spouse can inherit your ISA value
When you die, if you have a spouse or civil partner, they inherit a one-off additional ISA allowance. This allowance is equal to either the value of your ISA on the day you die or when it’s closed – whichever value is higher. This allowance is known as the Additional Permitted Subscription (APS) and doesn’t affect your spouse/civil partner’s own ISA allowance.
Say, for example, you have a stocks and shares ISA. And let’s assume that when you die, it’s worth £67,000. While your estate is being wrapped up, its value:
- increases by £500: your spouse/civil partner can apply for an APS of up to £67,500
- decreases by £500: your spouse/civil partner will still be entitled to an APS of up to £67,000.
This one-off contribution will be in addition to their own £20,000 annual ISA allowance.
What’s more, your spouse/civil partner can apply for the APS even if you leave the money in your ISA to someone else.
These rules are slightly different if your spouse or civil partner died between 3rd December 2014 and 5th April 2018.
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. A stocks and shares ISA may not be right for everyone and tax rules may change in the future. If you are unsure if an ISA is the right choice for you, please seek financial advice.