Yes. An ISA shelters income tax and capital gains tax during your lifetime, but it is not an inheritance tax wrapper — ISA investments form part of your estate for IHT. What the rules do give a surviving spouse is an extra subscription allowance equal to the value of the ISA, and a period during which the tax benefits continue after death.
The basic position
HMRC's wording is plain: there is no income tax or capital gains tax to pay up to the date of death, but ISA investments form part of the estate for inheritance tax purposes. A £400,000 ISA sits in the estate exactly as a £400,000 general investment account would, and is taxed at 40% above the available nil rate bands like anything else.
That surprises people because the ISA is so effective at everything else. It is worth being direct about it: if the objective is reducing inheritance tax, the ISA wrapper does nothing on its own.
What happens to the ISA after death
The account becomes a continuing account of a deceased investor. Investments stay free of income tax and capital gains tax while that lasts, but no new payments can go in.
It ends at the earliest of three points: the executor closes it, the administration of the estate completes, or — if neither has happened — the provider closes it 3 years and 1 day after death.
For a straightforward estate this rarely matters. For an estate that drags, it matters a great deal: three years and a day after death the shelter ends and the investments become taxable in the ordinary way, usually without anyone having diarised it.
The additional permitted subscription
The APS is the real concession. A surviving spouse or civil partner gets an additional ISA allowance equal to the deceased's ISA, on top of their own annual allowance. The couple must have been living together at the date of death — not separated under a court order or deed, or in circumstances likely to become permanent.
The amount is the higher of the value at the date of death and the value when the ISA ceased to be a continuing account of a deceased investor. Where there were several ISAs, a single APS limit is based on their combined values.
The time limits differ by route:
- Cash subscriptions — within 3 years of the date of death, or if later, 180 days after the administration of the estate is complete;
- In specie transfers — within 180 days of the assets being distributed to the survivor, and only possible with the deceased's original ISA manager. Moving to a different manager means the subscription has to be made in cash.
Be clear what the APS is and is not. It is an allowance, not a relief. It lets the surviving spouse shelter the same amount of money from future income and gains tax. It does not take the ISA out of the deceased's estate, and it does nothing to the inheritance tax bill — though in practice a transfer to a spouse is exempt anyway, so the IHT question usually arrives on the second death.
AIM shares: the one route to relief
Shares admitted to trading on AIM are unquoted for inheritance tax purposes, which is what makes business relief available on them. They have been holdable inside a stocks and shares ISA since 5 August 2013, and where an existing holder sells, moves the proceeds into the ISA and instructs the manager to reacquire, HMRC accepts that the replacement property provisions in section 107(1) apply — so the ownership clock is not restarted.
The rate changed on 6 April 2026, and this is the part most AIM ISA commentary has not caught up with. Shares admitted to trading on a recognised stock exchange but designated as not listed — which is what AIM shares are — now attract 50% relief in all circumstances. They do not benefit from the 100% band at all.
For context, the wider reform limits 100% agricultural and business relief to £2.5 million for deaths on or after 6 April 2026, with value above that getting 50%. The allowance was announced at £1 million and increased to £2.5 million in December 2025, and it is now transferable between spouses — where the first death left some of the 100% allowance unused it passes to the survivor, and where the first spouse died before 6 April 2026 the full allowance transfers. Note that gov.uk's older summary page still says £1 million and non-transferable; it is out of date.
So an AIM ISA still reduces the inheritance tax on those holdings, but by half rather than in full, and the two-year ownership requirement still has to be met. It is a smaller benefit for a materially higher investment risk than a mainstream ISA portfolio, and it should be sized accordingly.
Current limits
The overall ISA subscription limit for 2026/27 is £20,000, with no separate cash cap — the whole allowance can go into cash this year. The Lifetime ISA limit is £4,000 within that, and the Junior ISA limit is £9,000.
One change is coming. From 6 April 2027 the annual cash ISA limit falls to £12,000 for those aged under 65, while the overall £20,000 limit stays; those aged 65 and over keep a £20,000 cash allowance. A 22% flat-rate charge will also apply from that date to interest paid on cash held within a non-cash ISA. Our guide to the bed and spouse ISA covers the planning around allowances.
What to do about it
Treat the ISA as an income and gains shelter, and plan the inheritance tax separately — through nil rate bands, lifetime gifting, and reliefs that actually apply. Make sure the surviving spouse claims the APS, because it is easily missed in the weeks after a death and the in specie route has a short deadline. And if an AIM ISA was built for inheritance tax reasons, revisit the arithmetic at 50%.
Acumon advises families on estate planning and the tax treatment of investments through inheritance tax planning and private client tax work, with probate and estate administration where it is needed — see also our guide to inheritance tax rules. If a spouse died in the last three years and nobody mentioned an additional permitted subscription, that is the allowance to check before it lapses.