‘I didn’t realise the tax problems that my Stocks and Shares ISA in the UK would cause me. Should I get rid of it and what are my options?’

Stocks and Shares ISA’s are a tax efficient way to invest for a UK citizen living in the UK. However, for an American expat in the UK or a British expat in the US, it’s a different story. Due to your US tax filing requirement, the ISA tax benefits are often lost or heavily reduced. However, the solution for British expats in the US might not be the same for American expats in the UK.

What is the Issue?

The tax-free growth that an ISA provides in the UK is often lost for an American. It might be worth utilising your allowance if you have unused tax credits to offset tax in the US. The bigger issue with a Stocks and Shares ISA isn’t the ISA itself, but the investments within it. Most Stocks and Shares ISA’s are invested in collective or mutual funds, which can be deemed Passive Foreign Investment Companies (PFIC’s) and taxed at punitive rates. PFIC’s are a complicated topic. But you can find out more by viewing the Cross Border Financial Planning blog linked above.

How to Overcome the Issue?

Removing these PFIC’s is likely to be beneficial for both Americans in the UK and British expats in America. For an American expat in the UK, ISA’s only provide marginal benefit at best whilst you remain in UK residency. For a British expat in America who plans to return to the UK, the financial planning opportunities differ. Whilst the Stocks and Shares ISA may not be providing much benefit as a US resident, it will continue to provide the full benefit upon return to the UK.  This is only if you return without obtaining US Citizenship, a Green Card, or other connection as a US tax person.

The Key Takeaways:

If you’ve spent years building up your ISA portfolio and plan to return to the UK in the future, careful financial planning is needed. This is because, on the one hand you avoid the tax inefficiencies that many Stocks and Shares ISA’s cause for US connected persons, and on the other hand you retain the tax-free growth on the full investment when you return to the UK.

Combined with financial planning, tax planning is important. We recommend seeking tax advice when moving country, especially when your portfolio includes an ISA. To help you with your ISA planning as a US connected individual, Cross Border Financial Planning UK can provide guidance and advice. If you have any questions or enquires about this, please contact us.

The value of investments can fall as well as rise. You may not get back what you invest.

This does not represent personalised advice and that independent advice should be sought.