Inheritance Tax on ISAs

Yes, ISAs can be subject to inheritance tax. The tax breaks on an ISA cover income tax and capital gains tax during your lifetime, not inheritance tax. On death, ISA investments form part of your estate, and inheritance tax at 40% applies only to the part of the whole estate above the available tax-free bands (gov.uk, ISAs if you die, as at July 2026, subject to change).

This is one of the most common surprises in later-life planning: a wrapper marketed as tax-free is still counted when the estate is valued. This guide explains why an ISA is caught, what happens to the tax-free status after death, the special allowance for a surviving spouse, and the mainstream ways some people limit the eventual charge. It forms part of our wider Inheritance Tax Explained guide. Figures are current as at July 2026 and are subject to change.

Do you pay inheritance tax on an ISA?

An ISA is not exempt from inheritance tax. It is added to the rest of your estate at its value on death, and tax is charged only where the total estate is above the available bands. The ordinary nil-rate band is £325,000 per person, with 40% on value above the combined bands, or 36% where at least 10% of the net estate passes to charity (gov.uk, as at July 2026, subject to change). Transfers to a spouse or civil partner are generally exempt.

Why does an ISA count towards inheritance tax?

Because inheritance tax is charged on the whole estate, not on individual products. An ISA shelters your returns from income tax and capital gains tax while you are alive, but it carries no inheritance tax exemption of its own, so its date-of-death value is brought into the estate like any other asset (gov.uk, ISAs if you die, as at July 2026, subject to change). Where the estate stays within the bands, no tax arises on the ISA.

Source: gov.uk, ISAs if you die and gov.uk/inheritance-tax, as at July 2026, subject to change. The nil-rate bands are fixed until the end of the 2030-31 tax year (5 April 2031) (gov.uk).

Inheriting an ISA from a spouse or civil partner

Where an ISA passes to a husband, wife or civil partner, two separate reliefs can help. First, transfers between spouses and civil partners are generally exempt from inheritance tax, so the ISA usually passes free of that tax on the first death (gov.uk, as at July 2026, subject to change). Second, the survivor gains an inherited ISA allowance, an extra one-off amount on top of their own yearly allowance, broadly equal to the value the deceased held in their ISA (gov.uk, inheriting an ISA, as at July 2026, subject to change).

This inherited allowance lets the surviving partner keep the same amount sheltered inside an ISA going forward, rather than being limited to the ordinary yearly subscription. It is an allowance, not automatic ownership of the money, and how it is claimed depends on the provider (gov.uk, as at July 2026, subject to change).

Can you reduce inheritance tax on an ISA?

There is no way to make an ordinary ISA inheritance-tax-free simply by holding it, but several mainstream routes may reduce the eventual charge, depending on circumstances. None of these removes the need for advice, and each has trade-offs beyond tax.

• Spouse exemption. Leaving an ISA to a husband, wife or civil partner is generally exempt from inheritance tax, and the survivor may claim an inherited ISA allowance (gov.uk, as at July 2026, subject to change).
• Gifting from ISA funds. Money taken out of an ISA and given away can use the yearly gift exemptions and may fall outside the estate after seven years, though it leaves the ISA wrapper when withdrawn (gov.uk, rules on giving gifts, as at July 2026, subject to change).
• Charitable legacies. Leaving 10% or more of the net estate to charity can reduce the rate on the rest from 40% to 36% (gov.uk, as at July 2026, subject to change). See our guide to leaving money to charity in a will.

Some people also consider ISAs that hold shares qualifying for business relief, which can be a way certain holdings are treated for inheritance tax, but the rules are detailed and the reliefs have been under review, so this is general information rather than a recommendation. It can be worth discussing options with an FCA-authorised financial adviser or a tax professional before acting. Our note on IHT on shares and investments covers this in more depth.

ISAs and inheritance tax in Scotland and Northern Ireland

Inheritance tax and the ISA rules are UK-wide, so the £325,000 nil-rate band, the 40% rate and the inherited ISA allowance apply across Scotland, England, Wales and Northern Ireland alike (gov.uk, as at July 2026, subject to change). What differs is the surrounding succession law. Scotland has its own rules, including legal rights that can give a spouse and children a fixed share of the estate, and it uses confirmation rather than a grant of probate. Where an estate touches more than one UK nation, it can be worth taking advice in each. For the wider picture, see our estate planning guide.

Frequently asked questions