Until recently when someone died any savings or investments held inside an ISA automatically lost their tax-free status and the surviving spouse would start paying tax on any income or returns earned from it if they inherited.
The rules for inherited ISA’s have now changed, April 2015, so that only spouses and civil partners are now able to inherit their deceased partners’ ISA allowance, but not the actual ISA’s themselves, this affects the process of how ISA allowances are inherited.
The allowance is transferred automatically to the surviving spouse or partner but that does not mean the underlying assets also pass across. The deceased might have made a will which means the investments held inside their ISA could be transferred to another individual, maybe their children. This leaves the surviving spouse with the ISA allowance but not the underlying assets.
If a spouse does inherit the allowance and the investments inside the ISA then wishes to transfer that to their own ISA the transfer has to be completed within 180 days of when beneficial ownership passed to them.
As with all financial matters to ensure you achieve what you set out to check with a financial professional.