How can we avoid inheritance tax on our ISA portfolio?

My wife and I have had cash ISAs since they were introduced, happy with the promise of tax-free returns on our savings. However, we were recently at a party and someone mentioned that ISAs form part of your estate when you die for inheritance tax, which surprised us as we thought ISAs were tax-free. Is this true and, if so, is there anything we can do to correct this?

Question asked by Alan Heybrook
Need Inheritance Tax Advice?
Call us on 02084327334
First Name
Required Field

Without agreeing to our terms and conditions and privacy policy we are unable to provide you with accurate quotations from the UK's leading insurers.

Loading your options...
Thank you for using our Quote Tool
If you need some help, just call us!
T: 02084327334
Our in-house Experts are here to provide FREE impartial advice!
Our Experts can answer all your questions
Our Experts can send you more appropriate options based on your personal circumstances

Very important if you are either Self-Employed or a Company Director.

Our online quote tool is good but our Experts are better

Oue Experts have access to far more insurers and can often find a better deal offline.

Saves you time, let our Experts do what they are best at

Answered by Michael Englefield

Thank you for your interesting question on avoiding inheritance tax on ISAs.

It is true that individual savings accounts (ISAs), both the cash and stocks and shares varieties, have long been marketed as tax-free savings and investments accounts, allowing individuals to make a return free of income tax or capital gains tax. However, I’m afraid your acquaintance was right in that ISAs are not free of all tax: they are indeed added to your estate for inheritance tax (IHT) purposes.

You and your wife currently have cash ISAs, but a new piece of legislation has just been introduced that allows you to hold AIM-listed shares (AIM stands for Alternative Investment Market, which is a sub-market of the London Stock Exchange specifically designed so that smaller companies can float shares) within the wrapper of ISA.

Providing you’re willing and able to take on investment risk, you could escape IHT liability on the contents of your existing cash ISAs by converting them into an AIM portfolio, as the majority of AIM stocks qualify for business property relief (BPR) for IHT purposes.

The risks of holding AIM Shares in your ISA…

However, this is not a foolproof strategy. Share prices are volatile by nature, and there’s the very real risk that a portfolio of AIM shares held in an ISA could incur losses that exceed any IHT savings.

You won’t have the current security you have with cash on hand and, moreover, not all AIM stocks qualify for an IHT exemption — companies that deal in securities, stocks and shares, land or commercial buildings or which are dedicated to making or holding investments are likely to be barred from business property relief (BPR), for example. There’s also no definitive list of AIM stocks that will qualify.

So while it is technically possible to mitigate your IHT liability on ISAs providing you understand and are willing to accept that the sum you have invested could go down as well as up, these potential pitfalls mean that the best way to approach the issue is via a professional portfolio manager who specialises in AIM-listed stocks and who today run IHT-free ISAs.

Inheritance tax (IHT)
AIM shares
Business property relief
This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
Compare Top 10 UK Insurers
  Find out how a Drewberry financial adviser can help you reach your destination by making the most of your finances.
Call us on 

Frequently Asked Inheritance Tax Advice Questions

I have been reading about the new enhanced allowances on main residences for inheritance tax purposes...
How much inheritance tax will I be expected to pay on my estate in 2017? And is this likely to rise in...
My wife and I have had cash ISAs since they were introduced, happy with the promise of tax-free returns...
Is there an upper ceiling to the amount of inheritance tax my heirs would be expected to pay after...
Need Help? Live chat now and get an instant answer from our Experts...


Our Latest Reviews
Doug Harvey

Victoria swiftly helped in finding a solution which offered the required cover, with a more competitive premium.

Huw Davies

The service I received from Drewberry was excellent. Egle provided me with very detailed information about my insurance options and explained the pros and cons of each option clearly.

James Ager

Friendly, helpful and knowledgeable. Nadeem Farid searched the market and found a product that matched our needs.

We are rated 4.9/5 based on 1742 independent client reviews.
To read more of our independent client reviews click here →
4.93 / 5 Average
652 Reviews
Verified Buyer
Overall Rating
The whole process was a pleasure. Drewberry we're easy to deal with, polite, knowledgeable and helpful
Verified Buyer
Overall Rating
Very good, clear service would recommend to friends and family
Overall Rating
Sam Carr provided an efficient and professional service.
Verified Buyer
Overall Rating
Sam Carr provided a professional but enthusiastic service and helped make the whole process very straight forward. Goodness knows I have been through enough application forms recently. My insurance product was never going to be easy to find and I had been rejected on a number of other occasions through others ironically due to well managed common health conditions. I identified Drewberry in a last and disappointing trawl on th web to find someone that actually wanted to take on a difficult case like me. Some brokers wouldn't even consider me. When we applied for my first choice product Sam wasn't at all deterred by the long wait for my GP report or the final rejection that came back from the insurer, sadly I have become used to it. Within a day he had lined up the second choice and to my surprise he had hit the nail on the head and introduced me to the correct insurer and terms for my needs whilst nogotiating an excellent premium. I am extremely satisfied with what Sam has achieved for me and I would have no hesitation in recommending either him or Drewberry to friends, family and and business contacts. In the future, Drewberry will be my first point of contact. Many thanks!
Overall Rating
Tailored to my need and the staff gave very good service