Is it possible for me to inherit my partner's ISA? A little-known tax break can increase your allowance by thousands

Knowing what to do with your partner's ISA isn't always as easy, but inheriting it is relatively easy and offers unique benefits if you're married or in a civil partnership

According to recent statistics, the number of people inheriting their partners' ISA is skyrocketing as more people take advantage of a significant tax benefit that is only accessible to legally married couples. However, adopting someone else's investment approach carries risks.

Through so-called additional permitted subscriptions, nearly a third (33 percent) more people inherited ISAs held on the Hargreaves Lansdown (HL) platform last year; in just two years, the number has increased by two thirds (68 percent).

HL's head of personal finance, Sarah Coles, stated: "Over the past two years, there has been a noticeable increase in the number of people who inherit cash ISAs and stocks and shares ISAs on the HL platform and take advantage of a little-known tax break.

"The extra allowed subscription allowance can be extremely valuable, potentially shielding tens of thousands of pounds inherited from a spouse from taxation, but it's not always well understood. It's important to know what these are and how they can help you.

In separate articles, we examine the top cash ISAs and the top-performing stock and share ISAs.

What does an ISA additional permitted subscription mean?

The additional allowed subscription is a unique tax benefit for married couples and civil partners. You also transfer your ISA allowance to your spouse or civil partner if you leave savings and investments in ISAs to them.

The ISA's value on the date of death or the assets' value after probate is finished, whichever is higher, is what this is.

This implies that a spouse or civil partner who is left assets that were previously in an ISA may be able to use this allowance to wrap everything up without depleting their regular yearly allowance.

They can still use the extra allowed subscription to wrap around other assets even if they weren't left the ISA.

For instance, you could contribute 70,000 (50,000 plus 20,000) to your ISA for the 2025 - 2026 tax year if your spouse passed away with an ISA worth £50,000.

Your deceased spouse or civil partner's ISA providers must receive your application in order to register an additional permitted subscription for an ISA. You will have to disclose your relationship to the deceased as well as their ISAs.

Usually, the procedure entails submitting an application to the ISA provider and supplying required paperwork, such as the probate grant.

How should I handle investments that I inherited?

In practice, the surviving spouse might be able to transfer the inherited ISA investments over without selling them offa process known as a transfer in specieand open a stocks and shares ISA with the same provider. It's standard procedure.

There are typically no exit penalties, but make sure the platform, whether new or old, meets your needs, particularly with regard to fees and services.

Within the first year, half of HL clients who inherit investments in this manner (48 percent) do not make any changes to their portfolio. After inheriting, about 15% of people make their first trade within two weeks.

Jude Dawute, managing director of wealth manager Benjamin House, stated that the goal is to perform a basic review as soon as possible rather than to rush into the portfolio or ignore it completely.

It's important to remember that the original investments in an ISA were made with the deceased partner's objectives, not necessarily yours, when someone inherits one. Therefore, the first thing to do is to see if those holdings still make sense," he stated.

For example, switching might be appropriate if you need short-term income but they were invested for long-term growth.

"Having those talks between couples while both are alive about what happens to pensions, ISAs, debts, etc.," Dawute stated. greatly prevents misunderstandings or rash decisions in the future.

The dangers of cashing out an inherited ISA.

If your goals differ from those of your deceased spouse or if your situation has changed enough that a different type of investment portfolio is more appropriate, it may make perfect sense to make adjustments to an inherited ISA.

The danger with early sellers is that those who inherited investments may not know as much about them as their spouse does, and they may be selling simply because they lack the confidence to keep them.

Coles stated: "This may have unanticipated and detrimental effects. For instance, they risk depleting their savings much more quickly than they anticipated if they convert investments meant to generate income into cash while keeping the same income.

Should I keep the ISA investments made by my late partners?

On the opposite end of the spectrum, about 50% of people still own the exact same investments as their spouse.

This may make sense, particularly if a couple has planned together and created a portfolio that satisfies both of their requirements.

It's generally a good idea to wait to make any major changes after a loss until you've had some time to adjust to your new situation.

Nonetheless, there is still a chance that some of these investors haven't changed because they believe their spouse would prefer that they stay with them or because they don't think they understand enough.

Coles stated that it is crucial that the person left behind has all the information and assistance they require during a time such as this.

In some situations, this will entail discussing how investments operate and what they are intended to accomplish while you are both in good health.

Coles stated: "In this manner, you have reached decisions jointly, and one of you is confident enough to carry on on your own.

In other situations, the surviving spouse may benefit from financial counseling, where a specialist can provide all the assistance required to figure out the best course of action.