An ISA (Individual Savings Account) is a common component of a long-term savings and investment portfolio – but if you move outside of the UK, you need to decide on the best way to manage this account.
ISAs are designed for UK residents or citizens, and it’s important to understand how your deposit and withdrawal rights change once you relocate to a different country. While an ISA account offers tax benefits, you can only open an account or contribute to it while you are a UK resident (unless you are a Crown employee).
Therefore, you might either retain your ISA, particularly if you plan to return to the UK at some point, or reinvest your savings assets into another investment vehicle.
ISA Contribution Rules and Tax Benefits for Expatriates
The annual £20,000 ISA allowance does not apply to expatriates, nor can you make any further deposits from the tax year following the period when you moved. Essentially, you are sacrificing the annual £20,000 allowance, which could be growing tax-efficiently and contributing to your investment returns.
Exceptions apply, but only to Crown employees stationed overseas, and you should contact your ISA provider promptly to confirm that you are no longer a UK resident.
Taxation depends on where you move since some countries will levy a tax against the interest earned on your ISA overseas, provided you are considered a resident taxpayer – for example, the growth of an investment ISA could be taxed as income.
There isn’t one correct approach because:
- If you are relocating temporarily, you might decide to retain your ISA and resume contributions on your return.
- If you do not intend to return to the UK, closing the account and moving the funds to another investment or savings product in your new country of residence may be favourable.
Whichever options you decide upon, you can normally still transfer an ISA between providers whether or not you live in the UK. Still, it is significantly easier to manage an account with online access.
It is advisable that you work with a capable financial adviser because the rules can be complex, and the aspects of tax law that impact your portfolio will vary with your circumstances, the type of ISA you have, and your circumstances.
Taking Action to Manage an ISA Before an Overseas Relocation
There are pros and cons to retaining an ISA, and the best solution normally relies on an assessment of your plans, portfolio and expectations – the key facts to consider are that:
- You can only make contributions or open a new ISA as a UK resident, but you are not obliged to close an account if you relocate.
- You do not usually have to pay tax on the growth within your ISA – although that may change depending on the tax legislation in your new country of residence.
- There may be tax complications to assess, so it is good practice to consult a financial adviser who can guide you through the next steps.
In most cases, if you decide to reinvest your ISA in a more efficient and accessible product elsewhere, you need to consider the currency exchange risk. Simply withdrawing cash and transferring it to an overseas bank will often mean you are provided with a less-than-competitive exchange rate.
If you want to keep hold of your ISA and make a withdrawal from overseas, it also has to be paid into a UK bank account in most cases, so you will need to maintain a GBP account based in Britain if you do not wish to reinvest.
The biggest risk is the currency exchange rate since this can considerably impact your income. However, you can pre-book exchange rates in advance, mitigating exposure to lost funds due to unfavourable exchange rates.
Reinvesting an ISA as an Expatriate
Most expatriates permanently moving abroad will choose to reinvest or leverage the funds saved within an ISA to provide steady returns without potential losses to their assets when transferring between currencies.
One potential solution could be a Self-Invested Personal Pension (SIPP), although the timing is key if you intend to move back – tax residency usually applies for one full tax year even if you relocate mid-year. Several other alternatives may also be more attractive than an ISA, allowing you to avoid paying local taxation rates on returns, and giving you the flexibility to actively manage your investment fund.
Offshore bonds or ROPS transfers are also tax efficient and can be used by British expatriates to protect their wealth. You might also consider offshore investment platforms, which replicate most of the benefits of a stocks and shares ISA by reducing exposure to income tax, dividend taxes and capital gains tax.
Discussing the right options with your wealth management consultant is always important because the most suitable action will rely on other aspects of your savings and portfolio. The rules and requirements within your destination country are also relevant – for example, in the US, a cash ISA is treated as a foreign bank account, with interest earnings taxed at standard income tax rates.
A stocks and shares ISA is treated differently – you can select your preferred investments, such as unit trusts, ETFs, shares or bonds, but you need to determine what the underlying investments are held within your ISA.
That is because the interest from individual bonds or shares is categorised as interest from a cash ISA. But, if you have ISA funds invested into a mutual fund or ETF, you might be required to file Form 3520, a more complex declaration applicable to foreign pooled investments.
Professional ISA Advice for Foreign Nationals
An ISA is a tax-efficient savings product and can form a core part of your financial strategy, but the tax treatment and value of an ISA may change when you move to a different country. As we have discussed, the best options depend on where you live, for how long, and the opportunities you wish to explore to take advantage of tax efficiencies without unnecessary tax exposure.
If you have an ISA and would like to discuss the right solutions for you, please contact the nearest Chase Buchanan office at your convenience for further information and advice.
*Information correct as of August 2022