What Happens to a Stocks and Shares ISA When Someone Dies?

A stocks and shares ISA can hold a wide range of investments — shares, funds, investment trusts, and bonds — all sheltered from Income Tax and Capital Gains Tax. When the holder dies, the tax rules change, but not immediately: HMRC allows the ISA to remain as a continuing account for up to three years, preserving the tax shelter while the estate is administered.

The ISA becomes a continuing account after death

On the death of a stocks and shares ISA holder, the ISA does not automatically close. Instead, it becomes a "continuing account of a deceased investor." This means:

• The investments remain sheltered from Income Tax on dividends and interest, and Capital Gains Tax on growth, while the estate is being administered
• The continuing account status lasts until the earlier of: three years after the date of death, or the completion of the estate administration
• No new money can be paid into the continuing account — it is simply held in suspended animation
• The executor can instruct the ISA manager to sell investments and hold cash within the continuing account, or transfer investments to beneficiaries

This is a significant benefit compared with other investment accounts. The executor does not need to rush to sell ISA investments under time pressure — they can take up to three years to administer the ISA holdings while retaining the tax protection.

The Additional Permitted Subscription (APS) allowance for surviving spouses

The most valuable benefit available to the surviving spouse or civil partner of an ISA holder is the Additional Permitted Subscription (APS) allowance. This allows the surviving spouse to make an additional ISA contribution over and above the normal annual limit (currently £20,000 per year), equal to the value of the deceased's ISA at the time of death.

For example, if the deceased had a stocks and shares ISA worth £80,000 at the date of death, the surviving spouse receives an APS allowance of £80,000. They can contribute £80,000 into their own ISA in addition to the normal £20,000 annual allowance — potentially sheltering up to £100,000 in a single tax year.

The APS is not a transfer of the actual ISA — it is an increased allowance to put new money (including money received from the estate) into the surviving spouse's own ISA. The surviving spouse can use any ISA provider and does not have to use the same provider as the deceased.

How the APS transfer works in practice

To claim the APS allowance, the surviving spouse or civil partner contacts their chosen ISA provider and requests to use the APS. The process typically involves:

• Providing the ISA provider with the deceased's name, date of death, and the value of the deceased's ISA(s) at death
• Providing a copy of the death certificate and proof of the marriage or civil partnership
• The provider verifying the APS amount (they may contact the deceased's ISA manager to confirm)
• Paying the contribution into the surviving spouse's ISA — as a lump sum or in stages, as long as the total does not exceed the APS allowance and the deadline is met

Where the deceased's ISA held investments (rather than cash), it may also be possible to transfer the investments "in specie" — meaning the actual shares or funds are transferred directly into the surviving spouse's ISA without first being sold. This avoids the costs of selling and repurchasing, and means the surviving spouse can maintain the same investment strategy. Not all providers support in-specie transfers, so check with both the deceased's ISA manager and the surviving spouse's chosen provider.

Capital Gains Tax position on ISA assets at death

One of the most important tax benefits that applies on death is the Capital Gains Tax (CGT) uplift. When a person dies, all their assets — including those held in a stocks and shares ISA — are treated as if they were disposed of and immediately reacquired at their market value on the date of death. This means:

• Any gain made from when the deceased purchased an investment to the date of death is completely free of CGT — even if those gains were large
• Beneficiaries who inherit the investments are treated as having acquired them at the date-of-death value (their "base cost")
• Only gains made after the date of death — from the date-of-death value upwards — are potentially subject to CGT when the beneficiary eventually sells

While the ISA wrapper normally shelters gains from CGT, the CGT uplift applies to ISA assets as well. This means that if the estate sells ISA investments immediately after death, there will typically be no CGT to pay on any gains made during the deceased's lifetime — a significant benefit for estates with large, long-held investment portfolios.

Notifying the ISA manager and administering the continuing account

The executor should notify the ISA manager (the investment platform or provider) of the death as soon as possible. Contact the manager's bereavement team and provide:

• The deceased's full name, date of birth, and date of death
• Their account or policy number (found on statements or correspondence)
• A certified copy of the death certificate
• Proof of your authority as executor: a copy of the will, and the grant of probate once obtained

The ISA manager will freeze the account and convert it to a continuing account. They will provide you with a statement of holdings and values at the date of death, which you will need for the probate application and Inheritance Tax return.

During the administration period, the executor can instruct the ISA manager to sell specific investments, hold the proceeds as cash within the continuing account, and ultimately either transfer the holdings to beneficiaries or pay out the cash. Probate (grant of representation) is normally required before the ISA manager will act on executor instructions for accounts of significant value.

ISAs and Inheritance Tax

It is important to understand that the ISA wrapper provides no Inheritance Tax protection. The full value of the deceased's ISA is included in their estate for IHT purposes, just like any other asset.

The only IHT exemption available is the spousal exemption: assets passing to a spouse or civil partner are exempt from IHT regardless of value. So if the ISA passes to a surviving spouse (either directly under the will or through intestacy rules), no IHT will be payable on it — and the APS allows the surviving spouse to rebuild the tax shelter efficiently.

If the ISA passes to adult children or other non-spouse beneficiaries, the value is included in the taxable estate. This is a common estate planning consideration for families with large ISA holdings and no surviving spouse.