Martin Lewis explains little-known Cash ISA rule which adds £30,000 to your tax-free limit

Mr Lewis was responding to a viewer question about what happens to ISA savings when someone dies and how surviving partners can preserve tax advantages.

He said: “There is a special rule on death that says existing ISAs can be passed on to your spouse.”

Mr Lewis explained the rule allows surviving spouses or civil partners to apply for an additional ISA allowance equivalent to the value held in their partner’s ISA at the time of death.

He said the additional allowance can be granted even if the surviving partner does not directly inherit the ISA funds themselves.

“Imagine your spouse has £30,000 in an ISA, you can apply to add this to your allowance,” Mr Lewis said.

“So you now have an extra £30,000 ISA allowance. And that happens even if you are not the beneficiary of the money.”

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Mr Lewis said the rule means that if a deceased partner’s ISA savings are passed directly to children or other beneficiaries, the surviving spouse can still request an increase to their own ISA allowance by the same amount.

He said: “So let’s say the £30,000 went to the kids, you can still apply to increase your allowance by £30,000.

“So it’s a big yes to that one.”

The ISA inheritance rule was introduced more than a decade ago as part of pension and savings reforms announced by then-Chancellor George Osborne in the 2014 Autumn Statement.

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Before the rule was introduced, surviving spouses could inherit ISA savings but the funds would lose their tax-free status once transferred.

The Treasury estimated at the time around 150,000 people each year were losing tax advantages on inherited ISA savings following the death of a partner.

The additional allowance rule applies to both Cash ISAs and stocks and shares ISAs, allowing surviving partners to maintain tax-efficient savings if they apply successfully.

However, the rule only applies to legally married couples and civil partners and does not extend to common-law partners or unmarried couples.

Industry guidance states that unmarried partners are not eligible for the additional ISA allowance even if they shared finances or lived together long term.

Mr Lewis has also previously warned while ISAs protect savings from income tax on interest and investment returns, they do not protect the total value from inheritance tax.

Inheritance tax can be charged at 40 per cent on qualifying estates above available thresholds, depending on individual circumstances.

Current rules allow individuals to pass on up to £325,000 in assets without paying inheritance tax.

An additional £175,000 allowance may apply when a main home is passed to a direct descendant such as a child or grandchild.

Surviving spouses and civil partners can also inherit any unused inheritance tax allowance from their partner under current HMRC rules.

Financial experts say understanding how ISA and inheritance tax rules interact can be important for estate planning and long-term tax efficiency.

Recent policy discussions have also focused on future ISA allowance changes, with proposals suggesting Cash ISA limits could be reduced from £20,000 to £12,000 from April 2027.

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Under those proposals, the remaining £8,000 of the current £20,000 annual ISA allowance would need to be invested into stocks and shares ISAs.

Reports have also indicated savers aged over 65 may retain the ability to continue paying the full £20,000 annual allowance into Cash ISAs under potential exemption rules.

Any confirmed changes would form part of wider savings policy reforms aimed at encouraging long-term investment while maintaining support for older savers.

Financial advisers say ISA rules remain complex and recommend individuals seek regulated advice or check official HMRC guidance when planning inheritance or long-term savings strategies.