What Should An Expat Do When Leaving The UK With A ISA Account? – Leaving the UK and unsure what to do with your ISA account? Here’s some important considerations to help.
Australian Expats who have lived in the UK as residents for long enough would have likely opened an Individual Savings Account (ISA) at some point in time due to the neat tax savings they have to offer.
We’re commonly asked by Australian Expats what they should do with their UK ISA upon leaving the UK to either return to Australia or relocate to a new overseas destination.
In this article we look to work through the key considerations to help with this decision making process.
What type of ISA account do you have?
It’s important to understand what type of ISA account you hold as some have different withdrawal conditions.
There are 4 types of Individual Savings Accounts:
- Cash ISA
- Stocks and Shares ISA
- Innovative finance ISA
- Lifetime ISA
Generally, the most common ISA accounts used by expats are Cash ISAs and Stocks and Shares ISA’s as they offer the most flexibility.
Innovative finance ISAs are less common due to their specific purpose (i.e., peer-to-peer loans and crowdfunding), while Lifetime ISAs tend to be avoided by expats as there is a 25% charge imposed on withdrawal unless you’re age 60 or over, buying your first home in the UK or you’re terminally Ill.
If you have contributed to a Lifetime ISA, then the above withdrawal charge should be considered carefully.
Do you plan on returning to the UK?
ISAs are designed for UK citizens and residents, so they work best when this is the case.
They cannot be opened if you’re no longer a resident in the UK, and you cannot contribute any of the £20,000 annual allowance into an ISA after the tax year that you move away from the UK.
The good news is your ISA will not close when the tax year finishes, and you’ll keep your savings on a tax-free basis in the UK for as long as you keep the money in your ISA accounts.
Therefore, if you plan on returning to the UK at some stage, it may be suitable to retain your ISA so you simply resume contributions when you return.
What are the tax implications in my new country of residence?
While your ISA funds may continue to earn income tax free in the UK, it’s likely the income earned from the ISA would be subject to tax by your new overseas country.
Depending on the country, this is usually the case as your new country’s tax rules will not acknowledge the tax rules in the UK and so will impose tax on the earnings.
As an example, an ISA is not recognized by the Australian Tax Office and income and capital gains are taxed in Australia.
Because of this, it may be sensible to consider alternative investment vehicles that are more tax effective and suitable to your new tax situation.
Where should I reinvest my UK ISA funds?
If you don’t have intentions of returning to the UK, and particularly if your ISA is not a “Lifetime ISA”, the question can be asked of what other alternative investments vehicles are available that are more tax effective to your new tax situation.
If you’re an Australian expat that has since returned to Australia, it may be sensible to reinvest ISA funds into superannuation or real estate as a means for tax effective investing.
When reinvesting ISA funds into a different country, foreign currency fluctuations pose a risk as your ISA funds are usually denominated in UK Pounds.
Therefore, withdrawing at an inopportune time when the Pound is weak against your new country’s currency can have financial consequences and so consideration should be duly taken around this.
Seek Professional Advice
This discussion aims to outline the general considerations expats should be mindful of when looking at options around their UK ISA and does not consider personal circumstances such as age, investment time horizon and longer term financial goals.
Due to the complexities of cross-border financial planning, it’s always sensible to seek professional advice from a licensed financial adviser to discuss the most suitable option for you.