The number of people inheriting their partner’s ISA is booming, according to new figures, with more people taking advantage of a valuable tax break only available to legally joined couples. But there are risks to taking on someone else’s investment strategy.
Almost a third (33%) more people inherited ISAs held on the Hargreaves Lansdown (HL) platform, through what’s known as additional permitted subscriptions last year, and the number is up by two thirds in two years (68%).
Sarah Coles, head of personal finance at HL, said: “The number of people inheriting cash ISAs and stocks and shares ISAs on the HL platform, and benefitting from a little-known tax break, has risen notably in the last couple of years.
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“The additional permitted subscription allowance isn’t always well understood, but can be incredibly valuable – potentially protecting tens of thousands of pounds inherited from a spouse from tax. It’s worth understanding what these are, and how they can benefit you.”
We look at the best cash ISAs and the best performing stocks and shares ISAs in separate articles.
What is an ISA additional permitted subscription?
The additional permitted subscription is a special tax break for married couples and civil partners – if you leave savings and investments in ISAs to your spouse or civil partner, you pass on your ISA allowance to them too.
This is equal to the value of the ISA on the date of death, or the value of those assets once probate is complete – whichever is higher.
It means a spouse or civil partner who is left assets that used to be in an ISA could potentially wrap everything back up in this allowance, without using up their usual annual allowance.
Even if they weren’t left the ISA, they can claim the additional permitted subscription and use it to wrap around other assets.
So for example, if your spouse died with an ISA valued at £50,000, you could contribute £70,000 (£50,000 plus £20,000) to your ISA for the 2025/2026 tax year.
To register an additional permitted subscription for an ISA, you need to apply to the ISA providers of your deceased spouse or civil partner. You'll need to provide information about their ISAs and your relationship to the deceased.
The process typically involves filling out an application form with the ISA provider and providing necessary documentation like the grant of probate.
What should I do with inherited investments?
In practical terms, the surviving spouse may be able to open a stocks and shares ISA with the same provider, and shift the inherited ISA investments over without selling up – in what is known as a transfer in specie. This is common practice.
There usually aren’t any exit penalties — but check whether the new or existing platform fits your needs, especially around fees and service.
When HL clients inherit investments in this way, half of them (48%) don’t make any changes to their portfolio within the first year. Around one in seven (15%) make their first trade within two weeks of inheriting.
Jude Dawute, managing director at wealth manager Benjamin House, said the key is not to either rush in or neglect the portfolio entirely – but to do a simple review as soon as possible.
“When someone inherits an ISA, the key thing to realise is that the original investments were aligned with the deceased partner’s goals — not necessarily yours. So the first step is to review whether those holdings still make sense,” he said.
For instance, if they were invested for long-term growth but your needs are short-term income, then switching may be appropriate.
Dawute said: “Having those conversations between couples while both are alive – about what happens to pensions, ISAs, debts, etc. – really helps avoid confusion or hasty decisions later.”
The risks of selling out of an inherited ISA
Making changes to an inherited ISA can make perfect sense if you have different objectives to your late spouse, or your circumstances have changed significantly enough to mean a different kind of investment portfolio is more suitable.
The risk is that in some cases of early sellers, people who inherited investments might not be as familiar with investments as their spouse, and might be selling just because they don’t have the confidence to hold them.
Coles said: “This can have unforeseen and damaging consequences. If they switch investments designed to produce income into cash, for example, and continue to draw the same income as before, they could eat into their savings far faster than they were expecting.”
Should I keep my late partner’s ISA investments?
At the other end of the spectrum, around half of people are still holding exactly the same portfolio as their spouse had.
This can be a sensible approach, especially where a couple have planned together, and built a portfolio that meets both their needs.
After a bereavement, it’s often sensible not to make any sudden changes until you have had a bit of time to come to terms with your new circumstances.
However, there remains a risk that some of these investors haven’t made a change either because they don’t feel they understand enough, or because they feel their spouse would want them to stick with them.
“It’s why, at a time like this, it’s so vital that whoever is left behind is armed with all the knowledge and support they need,” said Coles.
In some cases, this will mean working together on investments, and talking about how they work and what they are designed to do, while you’re both in good health.
Coles said: “That way you have made decisions together, and one of you has the confidence to continue doing so alone.”
In other cases, the surviving spouse could benefit from financial advice, where a professional can give them all the help they need to find the right solution for them.
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