A look at the options available for ISAs for Non-UK residents. Many expats who have worked in the UK have built up ISA’s. Upon relocating elsewhere, these assets are often left unmanaged and misunderstood. Within this article, we confirm the position and assess the options available to you.
What is an ISA?
An ISA, or Individual Savings Account, is a type of savings or investment account available to residents in the UK. It was introduced by the UK government as a tax-efficient way to save or invest money.
An ISA allows you to save or invest a certain amount of money each year, and any interest earned on your savings or returns on your investments within the ISA are tax-free. This means that you do not have to pay income tax or capital gains tax on the money you earn from your ISA while you are a UK resident.
There are several different types of ISAs available, including cash ISAs, stocks and shares ISAs, and innovative finance ISAs. Each type of ISA has different rules and restrictions on how much you can invest, how you can invest, and how much you can earn tax-free.
Overall, ISAs are a popular way for people in the UK to save or invest money, as they offer a tax-efficient way to grow your wealth over time.
What happens to my ISA when I move abroad?
If you leave the UK, you can no longer make any contributions to your ISA after the tax year that you move. Please note this doesn’t apply to Crown employees working overseas or their spouse. You will need to inform your ISA provider the moment you become a non UK resident.
Whilst, you can keep your UK ISA open, however, will not be able to receive any advice on fund allocation from a UK FCA authorised adviser. You will get UK tax relief on the money and investments held but as you will be (non-Crown employees) tax resident elsewhere, it does not offer any benefit to your new country of residence.
As such, retaining a UK ISA will be inferior to a locally compliant savings/investment solution and open you up to potential tax liabilities in your new country of origin.
In terms of the options available to you, it is best to break this down into those planning to return to the UK and those who have permanently relocated and not intending to return.
If you have no intention of returning to the UK, holding your investments in a UK specific, tax-efficient product offers no benefit. Therefore, you are better off utilizing a product that caters to your new environment regarding tax efficiency and investment objectives. In Europe, that is likely to be a country-specific, locally compliant investment bond. That would offer you local tax benefits similar to a UK ISA as a UK resident.
An investment bond is a type of investment product offered by insurance companies based in tax-efficient offshore jurisdictions or in your new country of residence. These bonds are designed to provide a flexible, tax-efficient investment vehicle for individuals looking to invest their money.
Offshore Investment Main Benefits
The main benefits of offshore investment bonds include:
- Tax efficiency: These bonds are often located in low or no-tax jurisdictions, which means that investors can benefit from tax advantages that are not available in their home country.
- Flexibility: Offshore investment bonds offer a range of investment options, including equities, bonds, and property. This allows investors to tailor their portfolio to meet their individual investment goals and risk appetite.
- Estate planning: Offshore investment bonds can be a useful estate planning tool as they allow investors to nominate beneficiaries who will receive the proceeds of the investment upon the investor’s death.
Furthermore, it is important to note that offshore investment bonds can be complex and are not suitable for all investors. Investors should carefully consider their investment goals, risk tolerance, and tax implications before investing in offshore investment bonds.
For those that outside of Europe or if you have a more transient lifestyle, an offshore investment platform is likely to be more suitable.
An offshore investment platform is a financial platform that allows individuals or companies to invest their money in various financial products outside of their home country.
Offshore Investment Platforms Benefits
Offshore investment platforms can offer a range of benefits for investors, including:
- Tax advantages: Many offshore jurisdictions have tax laws that are favorable to investors, offering lower tax rates or tax exemptions on capital gains, dividends, and interest income. This can result in significant tax savings for investors.
- Diversification: Investing offshore allows investors to diversify their portfolio across different markets, currencies, and asset classes, reducing overall investment risk.
- Fund range: Offshore investment platforms provide access to an extensive range of funds. From ETFs, mutual funds, ESG funds, individual shares and more.
- Flexibility: Offshore investment platforms offer greater flexibility in terms of investment structures and management, allowing investors to tailor their investments to their specific needs and goals.
Accordingly, selecting the right product depends on your exact position, objectives and requirements moving forward.
Returning to the UK
ISAs for non-UK residents returning to the UK have a different position to consider. In essence, it’s the trade-off between retaining a product that will offer tax benefits upon returning. To, not receive any active management of the investments whilst abroad.
Whilst the tax benefits are substantial when a UK resident, when factoring in age, objectives, and fund allocation the results of mismanagement can have large consequences.
The resolution is to transfer to an ISA that can be managed by an offshore, regulated expat adviser. Products are now available that will allow you to transfer from ISA to ISA. This in itself is a nontaxable event and allows you to receive ongoing investment advice whilst a non-UK resident. As a result, ISA’s can be managed in line with your overall investment strategy in providing funds for retirement or loved ones as part of IHT.
In conclusion, the options of what to do with ISAs for non-UK residents is dependant on your unique situation. Both locally compliant offshore bonds and offshore investment platforms can offer significant benefits to expats in achieving their financial goals. For those returning to the UK, ISAs are available that offer ongoing management to create a best-of-both-worlds scenario. To discuss your personal situation, get in touch with Harrison Brook.