ISAs, Stocks & Shares After Death UK: Inheritance, Tax & Claiming 2025

What Happens to ISAs When Someone Dies?

ISAs (Individual Savings Accounts) are tax-free during the account holder's lifetime, but they lose this privileged status immediately upon death. Here's exactly what happens:

Important: The ISA doesn't automatically close on death. The executor can choose to leave it open during probate administration, which may be beneficial if it contains investments you don't want to sell immediately. However, any growth from the date of death onwards is taxable.

For surviving spouses and civil partners, there's significant relief available through the Additional Permitted Subscription (APS) system, explained in detail below.

Additional Permitted Subscription (APS) for Surviving Spouses

If you're the surviving spouse or civil partner of someone who died with ISAs, you're entitled to an Additional Permitted Subscription (APS) - an extra ISA contribution allowance on top of your normal annual allowance (currently £20,000 per year).

How APS Works

• APS amount: Equal to the total value of ALL the deceased's ISAs at the date of death (cash ISAs, stocks & shares ISAs, Lifetime ISAs, and Innovative Finance ISAs combined)
• In addition to normal allowance: You can contribute the APS amount PLUS your normal £20K annual allowance
• Example: If deceased had £85,000 in ISAs, you can contribute up to £85,000 through APS plus £20,000 normal allowance = £105,000 total
• Your own money: This is NOT a transfer of the deceased's actual ISA - you contribute your own funds using the increased allowance
• Any provider: You can use the APS allowance with your own ISA provider (doesn't have to be deceased's provider)
• Split if you want: You can split the APS amount across multiple ISA providers and types
• Deadline: Must claim within 3 years of death OR 180 days after probate granted (whichever is later)

How to Claim APS

1. Contact your ISA provider (can be different from deceased's) and ask to make an Additional Permitted Subscription
2. Complete APS application form with deceased's details (name, date of death, ISA value at death)
3. Provide evidence: Death certificate, marriage/civil partnership certificate, details of deceased's ISA holdings
4. Provider confirms allowance and you can then make contributions up to the APS amount
5. Make contributions as lump sum or regular payments (must be within deadline)

Common question: "What if I don't have enough cash to use the full APS allowance?" You don't have to use all of it - contribute what you can afford. Many surviving spouses use inheritance money (from the estate) to fund their APS contributions, effectively maintaining the ISA tax shelter on the inherited wealth.

Valuing Stocks and Shares for Probate

All stocks and shares owned by the deceased must be valued at the date of death for the probate application and Inheritance Tax return. This valuation is critical - it determines the IHT liability and becomes the base cost for future Capital Gains Tax calculations.

Valuation Methods by Investment Type

Tip: If the deceased held investments through an online platform (Hargreaves Lansdown, AJ Bell, Vanguard, etc.), most offer a probate valuation service for £50-150 which provides accurate valuations for all holdings in a format suitable for the probate application. This can save significant time and ensure accuracy.

Transfer vs Sell: What to Do with Inherited Shares

Once you have probate, you must decide whether to transfer (re-register) the shares to beneficiaries or sell them and distribute cash. Both approaches have advantages and tax implications.

Decision Framework

Transfer if:

• Single beneficiary who wants to keep the investments
• Beneficiaries are experienced investors with existing investment accounts
• Portfolio is diversified and of good quality
• Market conditions are poor for selling
• Shares have fallen since death (no CGT risk, beneficiaries may prefer to hold)

Sell if:

• Multiple beneficiaries wanting equal shares
• Beneficiaries don't want or understand investments
• Holdings are small or illiquid
• You want to close the estate quickly
• Shares are very concentrated (risky single holdings)

Mix approach: You can transfer some holdings and sell others. For example, transfer high-quality funds to interested beneficiaries and sell small, obscure holdings to simplify distribution.

Tax Treatment of Inherited Investments

Understanding the tax treatment of inherited shares and funds is critical for making informed decisions about whether to sell or transfer, and ensuring beneficiaries understand their tax obligations.

Capital Gains Tax (CGT)

Income Tax on Dividends

• Dividends declared before death: Belong to deceased (taxable in their final tax return if paid before death)
• Dividends declared after death: Belong to estate or beneficiary (taxable as income)
• Dividend allowance: £500/year (2024/25), then taxed at 8.75%/33.75%/39.35% depending on income bracket
• Held during probate: Dividends received by estate are taxable in estate's tax return
• After transfer: Beneficiary reports dividends on their own tax return

Inheritance Tax (IHT)

• Full value of shares at date of death included in estate for IHT purposes
• Taxed at 40% on value above £325,000 threshold (or £500,000 with residence nil-rate band)
• If shares fall in value between death and sale, can claim "loss on sale relief" to reduce IHT (must sell within 12 months)
• Spouse exemption: Shares passing to spouse/civil partner are IHT-free regardless of value

Practical Steps to Transfer or Sell Shares

To Transfer Shares to Beneficiaries

1. Beneficiary opens investment account: Must have account with investment platform or broker to receive shares (can be same or different provider as deceased)
2. Request transfer forms: Contact deceased's investment platform or share registrar for stock transfer forms
3. Complete transfer documentation: Provide probate grant, beneficiary account details, specify which shares/funds and quantities
4. Pay transfer fees: Typically £10-50 per holding (some platforms waive on death)
5. Submit transfer request: Send completed forms with probate grant copy to provider
6. Wait for processing: Usually 1-4 weeks for transfer to complete and shares to appear in beneficiary account
7. Confirm completion: Check beneficiary account and get confirmation from provider
8. Keep records: Note probate value (base cost) and transfer date for beneficiary's future tax records

To Sell Shares and Distribute Cash

1. Obtain probate grant: Cannot sell until you have probate (investment platforms require it)
2. Notify platform: Send death certificate and probate grant, request executor access to account
3. Decide when to sell: Can sell immediately or wait for better market conditions (but estate remains open)
4. Instruct sale: Use platform's online system or phone dealing to sell holdings
5. Pay dealing charges: Typically £10-25 per trade for online execution (more for phone)
6. Receive proceeds: Sale proceeds transferred to estate account (usually 2-5 business days after trade)
7. Calculate any CGT: If shares rose from probate value to sale price, may owe CGT (use estate's £3K allowance)
8. Distribute to beneficiaries: Transfer cash shares to beneficiaries according to will

Common Mistakes and How to Avoid Them