What should you do with your ISA?

What should you do with your ISA if you are leaving the UK?

Approximately 30% of adults in the UK hold an ISA account. The number of ISA holders among British expatriates isn’t explicitly known. However, it would be reasonable to assume that the majority have held or still hold such an asset based on the typical expat demographic profile. On average, expats are higher earners. For many, the move overseas is a financial one, so, logically, they will have been part of the 30% in the UK before leaving – if they are attentive to their financial situation. Most people will take out an ISA in the UK if they can afford to save and contribute.

Some expatriates may choose to close their ISA accounts, while others may keep them open. Some may have opened equivalent accounts in their new country of residence, but not all countries offer similar investment options to those of ISAs.

ISA account

ISA Options

If you plan to emigrate from the UK, you have a few options for what to do.

  • One option would be to close the ISA and withdraw the funds, although this may trigger taxes and penalties.
  • Another option would be to transfer the ISA to a similar account in your new country if, as mentioned above, such a thing is available.

If you are moving to a country within the European Economic Area (EEA) or Switzerland, you may be able to transfer your ISA to a similar account under the ISA Manager Transfer Scheme.

  • However, you should check with your ISA provider and the financial regulatory authorities in your new country of residence to understand the rules and regulations around ISAs.

One option you don’t have is to keep doing what you’re doing – i.e. contribute to it every year. The ISA rules stipulate that non-residents cannot a) open a new ISA account or b) make further contributions.

Leaving it where it is

If you leave your ISA where it is and do nothing, it will likely continue to be managed according to the terms and conditions of the ISA agreement. The ISA provider will continue to hold and manage the assets in the account, and any returns or growth in the value of the assets will continue to be tax-free. However, you will be responsible for ensuring that you continue to comply with the rules and regulations related to ISAs, such as contribution limits and eligibility criteria, even if you are no longer a resident of the UK.

It’s important to note that as you are no longer resident in the UK, you may not be able to add contributions to it, and some ISA providers may not allow you to hold an ISA account if you are no longer resident in the UK.

You should check with your ISA provider to confirm their policies regarding non-resident ISA holders, as well as consult with a financial adviser or tax professional to understand the potential tax implications of holding an ISA while you are no longer a resident of the UK.

Existing Advice

If you have a relationship with a financial adviser in the UK, you must consider whether or not they can continue to advise you. This depends on the specific financial adviser and their qualifications and licenses. Some financial advisors in the UK may be able to provide advice to clients who live overseas, while others (the majority) may not.

Many financial advisers in the UK are authorised by the Financial Conduct Authority (FCA) and are subject to its rules and regulations. The FCA does not have jurisdiction over financial advisers or firms operating outside of the UK, so an adviser authorised by the FCA may not be able to advise you if you live overseas.

It’s best to check with your financial adviser to confirm their qualifications and whether they can give advice to clients who live overseas. It’s also important to consider that, purely from a knowledge basis, the financial adviser may not be able to provide advice on the local tax laws and regulations that may affect you as an expat, so it may be beneficial to seek advice from a financial adviser who is familiar with the local laws and regulations in your country of residence.

Additionally, you may consider finding a financial adviser who CAN advise in your new country of residence and who can provide you with advice on local laws, regulations, and investment opportunities that may be more tailored to your specific situation as an expat.

Is the ISA still tax-free if I leave it behind?

The tax treatment of your ISA may change if you move to live outside the UK. The ISA is a tax-free investment for UK resident taxpayers. However, the tax laws and regulations in your new country of residence may treat ISA differently and may not provide the same tax benefits as in the UK.

United States – your ISA will continue to be tax-free in the UK. But in the US, you may be subject to different tax rules and regulations, depending on the type of income generated by your ISA. Interest income, dividends and capital gains from ISA investments may be subject to taxes, depending on the tax laws of your state of residence.

Residents must report and pay taxes on their worldwide income, including any income or gains from foreign financial accounts, such as an ISA account. The US has a Foreign Account Tax Compliance Act (FATCA), which requires US citizens, resident aliens, and certain non-resident aliens to report their foreign financial accounts on form FinCEN 114 (FBAR) if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year.

You may also be required to report your ISA account on your local tax return. This is the case, for example, in Canada, where you will have to report your ISA account in your T1135 form if the total value of your specified foreign property exceeds CAD 100,000.

However, it’s important to note that tax laws and regulations are subject to change and can vary depending on your specific circumstances and country of residence. It’s always best to consult with a tax professional familiar with the local laws and regulations in your new country of residence to understand the potential tax implications of holding an ISA while you are no longer a resident of the UK.

The bottom line is that, in many instances, an ISA will become very tax-inefficient quickly once the holder is no longer a UK resident.

What is the answer?

As with most areas of personal financial planning – the ‘answer’ is not the same for everyone, which is why the advice part is so important. A wrong decision or taking an improper action can significantly impact the value that any asset holds for you going forward.

If you are considering leaving the UK, look at the ISA options now. Some options may diminish after you have made the move. If you have already moved and are one of the many with an ISA back home, it doesn’t mean it’s too late to explore your options.

Hoxton Capital Management has the regulatory coverage and expertise. Where there is more than one financial jurisdiction at play and more than one set of rules to consider – we’d consider ourselves the leaders in the field. If you’d like to discuss your assets with one of the team, get in touch for a free discovery conversation and let’s see if we can help.

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