Are you living overseas with a UK ISA?
I’m going to explain 5 key things you need to know (to avoid an unpleasant visit from the tax man).
1. If you move abroad, you can keep your ISA, but you can’t add to it.
ISAs allow you to save and invest, in an account where your funds can grow free of tax on gains or income in the UK.
But UK saver’s have already paid income tax on funds they add to an ISA.
So HMRC don’t want non-tax payers who live overseas to pay into an ISA, otherwise it unfairly disadvantage UK tax payers.
If you already have an ISA, and you’ve moved overseas, you can keep it. You can even switch investments inside of it, or transfer it to another provider.
But you can’t add more money to your ISA.
2. You only need a tax wrapper for funds that grow (or produce a large income).
I see many people hang on to Cash ISAs once they’ve moved abroad, and then invest their other money in a normal (non-tax protected) investment account.
As a non-UK resident you still have your £12,570 personal allowance, plus a £1,000 personal savings allowance (for basic rate taxpayers).
This means if you have no other UK income, unless your Cash ISA is generating over £13,570 per year in interest, you wouldn’t pay UK tax anyway.
If it makes sense to hang on to your ISA, you could switch to a Stocks & Shares ISA and invest the money for future growth.
This way your investments will grow in a UK-tax protected environment, instead of using your tax wrapper for unproductive cash.
And you could then keep your cash savings in a normal bank account, as tax may be less of a concern.
3. ISAs usually aren’t tax protected outside of the UK
Many expats fail to realise that an ISA is only a UK tax wrapper. Once you leave the UK, most countries don’t recognise them at all.
So even though the money in your ISA can grow free of UK tax, local taxes might be owed on it.
This could include capital gains taxes if you switch investments inside of your ISA. And tax on dividends and interest, whether paid to you or automatically reinvested within the fund, if you keep your existing investments.
Depending on where you live, local tax wrappers might be a better solution (like life insurance based investments).
4. You might not need a tax wrapper at all
If you live in a tax-friendly jurisdiction in the Middle East or Asia, there might be simpler solution.
Many countries might not tax you locally, or they might exempt funds held offshore from local tax.
If you have no plans to return to the UK, there is little benefit to retaining UK tax wrappers.
A low-cost offshore investment account, can help you to consolidate your assets, in to one easy to manage place.
Rather than gathering different accounts as you move from one country to another.
5. Consolidating your accounts can make things easier
If you do plan to return to the UK, and have large amounts of savings in your ISA, it could make sense to keep it.
But as you can’t add to your ISA, you’ll sill need a platform to invest your other savings.
You could also consider transferring your ISA to a provider, that will allow expats to hold ISAs and Investment Accounts on one platform.
So you can have a coordinated strategy, to support your future goals, across your different accounts.
If you found this useful, you might like our free 13 Step Financial Checklist for British expats living overseas.
Or if you’re looking for professional help with your life insurance, pensions & investments – click here to book your free initial consultation.
