Inherited ISA Allowance: Rules, Deadlines, and Inheritance Tax

The inherited ISA allowance, formally called the Additional Permitted Subscription (APS), lets a surviving spouse or civil partner shelter an extra amount from tax equal to the value of their late partner’s ISA. It sits on top of the standard £20,000 annual ISA allowance and applies to deaths on or after 3 December 2014.¹

Who Can Claim It

You qualify if you were married to or in a civil partnership with the ISA holder when they died, and you were living together at the time of death in the sense used by section 1011 of the Income Tax Act 2007. Couples who had formally separated, or who were in the process of divorcing, do not qualify.²

One point catches many people out: the allowance belongs to you regardless of who inherits the money. If your partner left their ISA savings to a child, a sibling, or a charity, you still get the extra subscription limit, and you can fill it with your own funds. The allowance and the assets are separate things.

Non-UK residents can claim the APS as well. The one restriction is that a non-resident survivor cannot use the allowance to contribute to a Lifetime ISA.²

How Much You Get

The APS equals the value of the deceased’s ISA holdings, and the exact figure depends on which valuation date you choose. For all deaths, the baseline is the market value on the date the account holder died.

For deaths on or after 6 April 2018, there is a second option. The deceased’s ISA can carry on as a “continuing ISA” during the probate period, sheltered from income tax and capital gains tax, until the account is closed, the estate administration finishes, or three years and one day pass from the date of death.³ If the investments grew during that window, you can choose the higher value at the point the continuing ISA ends rather than the date-of-death value.⁴

The choice matters. If your partner held a stocks and shares ISA worth £80,000 at death, and the portfolio rose to £95,000 by the time probate concluded, the later valuation gives you £15,000 more in tax-free subscription space. The whole amount sits on top of your normal £20,000 allowance.¹

Which ISAs Are Covered

The APS applies to all four ISA types: cash, stocks and shares, innovative finance, and Lifetime ISA. The Lifetime ISA route is only available if you are a UK resident.

If the deceased held ISAs with more than one provider, you get a separate APS limit with each provider. Once you start making subscriptions with a particular provider, though, you have to use up the remaining balance with that same provider. Unused APS capacity cannot be moved from one provider to another.²

Deadlines You Cannot Miss

Cash subscriptions must be completed within three years of the date of death, or within 180 days from the date estate administration finishes if that is later.²

For in-specie transfers, where you move the actual shares or funds into your own ISA rather than converting to cash first, the deadline is 180 days from the date the assets are distributed to you.² In-specie transfers are only possible when you use the same ISA provider the deceased used, so check this early if you want to keep the existing investments rather than sell them.³

Miss either deadline and the allowance is gone. There is no extension process and no appeal. If the estate is complex, keep both dates on your calendar from the start.

What You Need to Give the Provider

Before your first APS subscription can go through, the ISA manager needs information about the deceased:²

Full legal name as it appeared on financial records
Permanent residential address at the date of death
Date of birth and date of death
National Insurance number if known (not strictly required)
Date of marriage or civil partnership
Which provider held the deceased’s ISA

You also make a formal declaration confirming you are the surviving spouse or civil partner and that you were living with the deceased when they died. That first declaration is a one-off, but each subsequent subscription needs its own declaration that the payment falls within the permitted time limits.

Inheritance Tax Still Applies

A common misconception is that ISAs are entirely tax-free on death. They are protected from income tax and capital gains tax during the continuing ISA period, but the full value of the ISA holdings counts as part of the deceased’s estate for inheritance tax.³ If the estate exceeds the nil-rate band, the ISA savings may contribute to an inheritance tax bill.

This does not affect your APS entitlement. The two are handled separately. Even if inheritance tax is due on the ISA funds, you still receive the full allowance to use with your own money.

If You Have a US Tax Filing Obligation

If you are a US citizen or resident alien, the picture changes. The US taxes worldwide income and does not recognise the UK’s ISA tax exemption, so interest, dividends, and capital gains earned inside a UK ISA are reportable on your US return. Many UK-based mutual funds and investment trusts held within stocks and shares ISAs qualify as Passive Foreign Investment Companies under US tax law, which brings its own reporting on Form 8621 and can eliminate favourable long-term capital gains treatment.⁵

A large inherited allowance may also push you over the thresholds for the FBAR (FinCEN Form 114)⁶ and Form 8938.⁷ Take specialist cross-border tax advice before choosing between an in-specie transfer and a cash subscription, because the decision locks in the US tax treatment of what you hold going forward.

1
GOV.UK. Individual Savings Accounts (ISAs) – How ISAs Work
2
GOV.UK. Manage Additional Permitted Subscriptions Into an ISA
3
GOV.UK. Individual Savings Accounts (ISAs) – If You Die
4
GOV.UK. Individual Savings Accounts Subscription Limits for 2017 to 2018 and Other Changes to ISA Rules
5
Internal Revenue Service. Instructions for Form 8621 (Rev. December 2025)
6
Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
7
Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets?