What happens to ISAs when someone dies?

• When someone dies, their ISA becomes a continuing account of a deceased investor, or continuing ISA, retaining its tax-free status for three years and one day.
• ISAs are also part of the taxable estate so Inheritance Tax must be paid on them if an estate value exceeds £325,000 unless additional allowances can be applied.
• When ISAs push up the cost of an Inheritance Tax bill, Provira’s Estate Advance can provide the funds to pay it off before the deadline.

When someone dies, an ISA keeps its tax-free status on any income or growth while probate is carried out. 

The account becomes what’s known as a continuing account of a deceased investor, or a continuing ISA, retaining its tax-free benefits for up to three years and one day.

However, the money in an ISA forms part of an estate. This means while it still isn’t exposed to Income or Capital Gains tax, it may count toward an Inheritance Tax bill if the estate sits above the tax-free threshold.

What happens to ISAs beyond this point depends on how the estate is administered. This is based on whether there’s a will, if there are named beneficiaries or whether the deceased had a spouse or civil partner. 

The value of ISAs can considerably push up the cost of an Inheritance Tax bill and, with payment due within six months of the date of death, this can pose a significant financial obstacle for executors. 

At Provira, we help executors struggling to cover Inheritance Tax bills every day. By providing a loan to pay off their bill before estate funds can be released, families are able to move forward quickly and confidently.

Our Inheritance Tax loan provides access to up to 50% of the net value of the estate within days. 

Not only this, but we only charge simple interest, not compound interest, don’t charge early repayment fees, and don’t require monthly repayments. 

We are simply repaid in full once the estate has been administered.

For more information, read about our Inheritance Tax loan here.

What is a continuing ISA?

A continuing ISA is a continuing account of a deceased investor – the term given to ISAs when someone dies. It retains all of its tax-free benefits for up to three years and one day or until the estate is administered, whichever happens first.

A continuing ISA must follow certain terms:

• No money can be paid in or taken out.
• Investments or savings are able to continue to grow free of Income Tax or Capital Gains Tax while probate is carried out.
• After three years and one day, the ISA provider will close the account, regardless of whether the estate has been administered or not. The money will then become a standard part of the estate and lose its tax-free status.
• The executor is entirely responsible for managing any ISAs.

As with any other asset, when someone dies, an ISA essentially becomes frozen in time until probate is complete and the estate is administered according to how it’s been planned.

Do you pay Inheritance Tax on ISAs?

Yes, when someone dies, ISAs form part of the estate and therefore may be liable to Inheritance Tax.

Including an ISA in an estate drives up the net value, which could push the estate above the tax-free threshold. 

Currently, the nil-rate band, or tax-free allowance sits at £325,000. Any part of the estate that sits above this is charged 40% tax.

The nil-rate band can be combined with the residence nil-rate band for direct descendants receiving property. The residence nil-rate band is £175,000, which can make the total combined tax-free limit £500,000.

For more information on the thresholds for Inheritance Tax and allowances available, read our guide here.

Although ISAs are exempt from Income and Capital Gains tax during your lifetime, they are included as part of an estate for Inheritance Tax purposes. 

This can increase the value of the estate and in turn, the amount of Inheritance Tax that may be due within six months of death.

For executors, this can be a heavy burden to bear. Amongst grief? It can feel overwhelming.

That’s where our Inheritance Tax loan provides a lifeline for so many families. 

Our loan offers up to 50% of the net value of the estate, helping to cover an Inheritance Tax bill without requiring any personal liability at all. 

Plus, we keep costs predictable by charging simple interest rather than compound interest. There are no monthly repayments to make, and if the estate is settled sooner than expected, there are no early repayment fees.

Struggling to cover an Inheritance Tax bill? Start your application with us today.

Who inherits an ISA when someone dies?

When someone dies, their ISA is passed to whoever is named in their will. If there’s no will, the ISA will be administered according to the rules of intestacy.

Those who could inherit an ISA directly include a spouse, civil partner, or any named beneficiary. It’s worth noting that the named recipient will inherit the value of the ISA, not the account itself.

The following types of ISAs can be inherited:

• Stocks and shares ISA
• Cash ISA
• Lifetime ISA
• Innovative finance ISA
• Junior ISAs

No matter the type of ISA or who it is being passed on to, Inheritance Tax must still be paid before it can be distributed.

And when probate can take months, sometimes years to complete, beneficiaries may have to wait for a long time to receive their inheritance.

For more information on how our Inheritance Tax loan can help with this, click here.

What is the allowance for inherited ISAs?

Inherited ISAs form part of the deceased’s estate, similar to other assets, and can fall under any of the existing tax-free allowances. 

What’s different for ISAs is that the surviving spouse or civil partner of the deceased is given an ‘additional permitted subscription’ (APS), significantly increasing their ISA tax-free limit. They don’t even have to inherit the money from the ISA to claim for the APS.

This is equal to the value of the deceased’s ISA when they die or when the account is closed – whichever is higher – and can be used on top of the standard £20,000 annual ISA allowance. 

They must apply for the additional allowance in order to use it. 

Let’s look at how this works in practice.

Say your partner builds up an ISA worth £60,000. As their surviving partner, you are entitled to an additional ISA allowance of £60,000, on top of the standard annual £20,000 limit.

This means you could put up to £80,000 into an ISA in the year you make the claim.

While this is a generous increase in tax-free allowance for the surviving partner, the full value of the deceased’s ISA will still form part of the estate, and could bump up the value considerably.

Ultimately, it doesn’t help curb the cost of the resulting Inheritance Tax bill.

Luckily, our Inheritance Tax loan is designed for exactly this scenario. 

For families facing both grief and a looming tax deadline, gaining access to up to 50% of the net estate value can relieve a lot of financial pressure, allowing them to focus on more important things.

And while keeping our costs as low as possible, we also dedicate a compassionate member of our team to provide a guiding hand from start to finish. 

To start your application, fill out our form today. It takes just a few minutes.

How Provira can help with ISAs when someone dies

ISAs are an efficient tax-free way to invest and save money. So when someone dies, it can feel contradictory to suddenly be charged a high amount of Inheritance Tax on them.

Sadly, this is the reality, and estates can be caught out if they don’t plan ahead.

Understanding what happens to ISAs when someone dies is incredibly important to save both administrative time and money and protect your estate for those you’re leaving it to.

For many estates, a high Inheritance Tax bill is unavoidable, and an ISA can significantly contribute to it. 

Provira’s Inheritance Tax loan gives executors access to up to 50% of the net value of the estate, relieving the financial burden a high IHT bill can pose. 

With our loan you:

• Keep costs low: we only charge simple interest, not compound interest, don’t charge early repayment fees, and only require payment once the funds have been released.
• Face no personal liability: there are no credit checks, the loan is secured entirely against the estate.
• Have expert support throughout: our compassionate team is on hand for any question, big or small. 

Ready to start your application? Get in touch today.