Yes, ISAs count for inheritance tax. An ISA is tax-free for income tax and capital gains tax while you hold it, but that shelter does not extend to inheritance tax. When you die, the full value of your ISAs is added to your estate, and the same 40% rate can apply.
Two reliefs change the outcome, and people confuse them: the spouse exemption removes the tax; the Additional Permitted Subscription (APS) only preserves the tax-free growth. One point is now out of date in older material: AIM ISAs stopped being fully IHT-free on 6 April 2026. Figures are as at August 2026 and subject to change.
Do ISAs count towards inheritance tax?
ISAs count towards inheritance tax in full. The value of every ISA you hold at death, cash, stocks and shares, Lifetime or Innovative Finance, is added to your estate, and inheritance tax at 40% can apply to any excess above your allowances.
The "tax-free" label covers two taxes only: no income tax on interest or dividends, and no capital gains tax on growth. Inheritance tax is separate. The first £325,000 passes tax-free under the nil-rate band, with up to £175,000 more (the residence nil-rate band) where a home goes to direct descendants: up to £500,000 for one person, or £1,000,000 for a couple. Above that the rate is 40%, or 36% if at least 10% of the net estate goes to charity. Both bands are frozen until 5 April 2031 (gov.uk, inheritance tax, as at August 2026, subject to change). See our inheritance tax overview.
What happens to your ISA when you die?
When you die, your ISA becomes a "continuing ISA". No new money can be added, but it keeps its tax-free growth until administration finishes, the account closes, or three years and one day pass from death, whichever comes first. It then passes under your will or the intestacy rules, and still counts towards inheritance tax.
Most ISA types work this way, though a Junior ISA cannot pass by an APS. A stocks and shares ISA is often sold and passed on as cash, though the investments can move across through an in specie transfer (gov.uk, ISAs if you die, as at August 2026, subject to change).
Do you pay inheritance tax on an ISA left to your spouse?
No. An ISA left to a husband, wife or civil partner is free of inheritance tax under the spouse exemption, which covers assets passing between spouses and civil partners without limit. So a £400,000 ISA left to your wife carries none at your death.
The exemption is unlimited only between spouses and civil partners, not unmarried partners, however long they have lived together. It defers the tax rather than cancelling it: the money then sits in the survivor's estate, where it may be taxable on their death. Charities are also exempt beneficiaries (gov.uk, inheritance tax, as at August 2026, subject to change).
What is the APS, and does it save inheritance tax?
The Additional Permitted Subscription (APS) is a one-off extra ISA allowance for a surviving spouse or civil partner, equal to the value of the deceased's ISAs, letting the survivor keep that money growing tax-free. The APS does not save inheritance tax: it preserves the income and capital gains tax shelter, while the separate spouse exemption removes any inheritance tax.
Both apply to a surviving spouse at once, but they do different jobs.
| Relief | What it does | Who gets it |
|---|---|---|
| Spouse exemption | Removes inheritance tax on the ISA passing at death. | Spouses and civil partners (unlimited). |
| Additional Permitted Subscription (APS) | Preserves the tax-free ISA wrapper via an extra allowance equal to the deceased's ISA value. Does not affect inheritance tax. | Surviving spouse or civil partner only, since 6 April 2015. |
Source: gov.uk/individual-savings-accounts/if-you-die, as at August 2026, subject to change.
Worked example: a £50,000 ISA passing to a spouse
Ann dies leaving £50,000 in ISAs to her husband, Paul. The spouse exemption means no inheritance tax on it. Separately, Paul gets an APS of £50,000, so his allowance that year becomes £70,000: his own £20,000 plus the £50,000 APS. He moves Ann's money into his own ISA to keep it sheltered, then returns to £20,000 next year.
To claim an APS, the surviving spouse:
- Contact an ISA provider, the deceased's or your own, with the death certificate and confirmation you were the spouse or civil partner living together at the date of death.
- Use the allowance in time. For cash, the deadline is three years from death, or if later, 180 days after administration completes. For an in specie transfer, it is 180 days from when you become entitled to the investments.
- Subscribe up to the APS value, in one or more amounts. You need not inherit the ISA itself: the APS is yours even if the deceased left it to someone else.
Source: gov.uk, ISAs if you die, as at August 2026, subject to change.
What if you inherit an ISA from someone other than a spouse?
If you inherit an ISA from a parent, sibling, friend or anyone who is not your spouse or civil partner, it loses its tax-free status and there is no APS. The ISA value counts towards the deceased's estate, and inheritance tax at 40% can apply to the part of the estate above the £325,000 nil-rate band.
You receive what is left after any inheritance tax on the estate is settled, and outside an ISA the money follows the normal savings rules. The residence nil-rate band can help, but it is withdrawn by £1 for every £2 of estate above £2,000,000 (gov.uk, inheritance tax, as at August 2026, subject to change). Our guide to gifting money to children and inheritance tax covers passing wealth down earlier.
Are AIM ISAs still free of inheritance tax? (what changed in 2026)
Not in the way they used to be. ISAs holding qualifying shares on the Alternative Investment Market (AIM) once escaped inheritance tax in full after two years, through Business Property Relief at 100%. From 6 April 2026, that relief on AIM shares dropped to 50%, an effective inheritance tax rate of 20% rather than nil (gov.uk, agricultural and business property relief reforms, as at August 2026, subject to change).
| AIM shares in an ISA | Before 6 April 2026 | From 6 April 2026 |
|---|---|---|
| Business Property Relief rate | 100% | 50% |
| Effective inheritance tax rate | 0% | 20% |
| Covered by the £2,500,000 full-relief allowance? | Not applicable | No, AIM shares get the flat 50% rate regardless of value |
Source: gov.uk, APR and BPR reforms, as at August 2026, subject to change.
AIM shares are higher risk and can fall in value, so tax is only one factor, and nothing here is a recommendation to buy or keep any investment.
How can you reduce inheritance tax on an ISA?
Holding an ordinary ISA does not make it inheritance-tax-free. The tax is usually reduced through the wider plan: leaving assets to a spouse or civil partner (no tax now, the APS keeping the wrapper), leaving 10% or more of the net estate to charity (cutting the rate on the rest from 40% to 36%), and lifetime gifts, with the £3,000 annual exemption immediate and larger gifts falling out after seven years.
From 6 April 2027, most unused pension funds are also brought within the estate for inheritance tax (gov.uk, reforming inheritance tax on unused pension funds and death benefits, as at August 2026, subject to change), so the order you draw on ISAs, pensions and savings matters. See our guides to pensions and inheritance tax from 2027 and writing a will.
Frequently asked questions
Do ISAs count for inheritance tax?
Yes. The full value of your ISAs is counted as part of your estate on death, and inheritance tax at 40% can apply to the excess above your allowances. The ISA tax shelter covers income tax and capital gains tax during your lifetime, not inheritance tax (gov.uk, as at August 2026, subject to change).
Does the Additional Permitted Subscription save inheritance tax?
No. The APS preserves the income tax and capital gains tax shelter of an ISA by giving the surviving spouse an extra ISA allowance equal to the deceased's ISA value. Any inheritance tax saving comes from the separate spouse exemption, not the APS. A non-spouse cannot claim an APS at all (gov.uk, as at August 2026, subject to change).
Are AIM ISAs still free of inheritance tax?
No longer in full. From 6 April 2026, Business Property Relief on qualifying AIM shares fell from 100% to 50%, giving an effective inheritance tax rate of 20% rather than nil, and AIM shares do not use the £2,500,000 full-relief allowance. Guides that still call AIM ISAs completely IHT-free are out of date (gov.uk, as at August 2026, subject to change).