As you probably know, an Individual Savings Account (ISA) can be a great way to grow your wealth, whether you want to save in cash or invest your money.
However, since they are primarily designed for UK citizens and residents, moving abroad can throw a spanner into the works. As an expat, this may leave you asking yourself, “can I still have an ISA if I live abroad?”
When it comes to tax rules, making mistakes can be costly and that’s why it’s important to be able to make informed decisions. Read on to find out everything you need to know about your ISAs if you’re moving abroad.
What are the benefits of using an ISA?
Before anything else, it’s important to understand what tax benefits could be affected if you moved abroad.
One of the main benefits of saving with an ISA is that they are a tax-efficient way to grow your wealth. This is because any returns from your ISA account are paid free from Income Tax or Capital Gains Tax.
This can be a valuable benefit as it helps your money to grow without being eaten away by taxes.
How much can I contribute into an ISA each year?
If you want to save effectively, it’s important to know the tax limits and thresholds that come with an ISA. Because of their tax-efficient status, the government places a limit on how much you can contribute into them. This limit is called the ISA allowance.
It’s also crucial to bear in mind that the limit applies to the tax year, which runs from 6 April to 5 April.
As of the 2021/22 tax year, the ISA allowance is £20,000. It’s important to remember that this limit applies across all of your ISAs if you hold more than one.
For example, if you have a Cash ISA and a Stocks and Shares ISA, you can only contribute £20,000 into them between the two, not individually.
Another important thing to be aware of is that, unlike with some other tax allowances, your annual ISA allowance doesn’t roll over. If you haven’t used your full amount by the end of the tax year, you will lose the remaining amount.
What different types of ISAs are available?
When it comes to contributing to an ISA, you have several different options for ways to grow your wealth. Some of the most popular products available from ISA providers are:
One option you have is the Cash ISA, which holds your wealth in cash like a regular savings account. The main difference is that you don’t need to pay Income Tax on any interest that your money generates.
Cash ISAs are one of the most popular ISA products available and have a high degree of flexibility, allowing you to easily make withdrawals if you need to access your money.
However, one thing to bear in mind is that, as I mentioned in a previous article about whether you should reconsider your Cash ISA, the interest rates for these accounts can be quite low. This can pose a problem if it is lower than the rate of inflation, as the true value of your money may be eroded over time.
This is why it’s important to find the best Cash ISA to help maximise your money’s growth and outpace inflation.
Stocks and Shares ISAs
Alternatively, you may want to choose a Stocks and Shares ISA. This type of account allows you to invest your money, such as by buying company shares or bonds. Since the returns are not subject to Capital Gains Tax, this is a tax-efficient way to invest.
While this type of account typically offers returns that are greater than the rate of inflation, it does also come with an element of risk. Since you are investing your money, there is a chance that you may lose value.
For this reason, it’s important to think carefully before you make an investment. If you’re interested in investing but aren’t sure how much risk you’re willing to tolerate, you may benefit from seeking financial advice.
Another popular option is the Lifetime ISA (LISA), which you can open as long as you’re between the ages of 18 and 39. These products are aimed at helping young people to get onto the property ladder, although they can also be used to save for retirement.
You can put up to £4,000 into a LISA per year until the age of 50. Any money you put in a LISA will count towards your total £20,000 ISA allowance in that tax year.
The main benefit of this product is that the government will top up your contributions by a further 25%, which can be a valuable incentive.
You can have both a Cash and Stocks and Shares Lifetime ISA, but you can only save into one in each tax year, and you can only claim the 25% bonus on one account.
Since products can vary, you may want to shop around to find the best Lifetime ISA for your needs.
Please bear in mind that if you plan to use a LISA to save for retirement, you will not receive tax relief on your contributions.
What happens to my ISA if I move abroad?
While ISAs have many valuable tax benefits for UK citizens, there can be complications if you move to a new country. Typically, you can only open and fund an ISA if you are a resident in the UK, or a Crown employee (sometimes known as a “Crown servant”).
This means that if you move away and are no longer a UK resident, you won’t be able to fund your existing ISAs or open a new one.
However, while you’re living in another country, you can still hold onto your existing ISAs and benefit from their tax-efficient status.
Can I keep contributing to my existing ISAs?
If you move to a new country, you cannot open any more ISAs while you’re living abroad, nor can you contribute any money into them after the tax year that you move in.
This means that you are essentially sacrificing your annual £20,000 allowance of money that could be growing in a tax-efficient way.
The only exception to this rule is if you’re a Crown employee working overseas, which makes you exempt. This also applies to your spouse or civil partner if they move with you.
It’s important to speak to your ISA provider as soon as possible once you move to a new country to let them know that you’ve ceased to be a UK resident.
Will I have to pay tax on my ISA if I move abroad?
This can be a tricky question to answer as it largely depends on which country you’re moving to. It is possible that the country you move to will require you to pay tax on the returns on your ISAs there. For example, if you have investment ISAs then the growth of your portfolio may be taxed.
How long you plan to spend abroad can also impact your financial decisions. For example, if you are moving abroad temporarily for work purposes, then it’s probably wise to keep your ISA open until you return.
However, if you’re planning to move there permanently to start a new life, you may prefer to close the account and move the funds to another savings or investment product in your new country of residence.
Whatever you choose to do, you will typically still be able to transfer any ISAs you already hold between providers, even if you no longer live in the UK. It is typically easier to manage your ISAs if you have online access to them when living abroad.
How can speaking to an advisor help me?
While ISAs can be a great way to grow your wealth, there can be a lot of complicated rules to bear in mind. This is especially true if you’re planning to move abroad.
If you want to be able to navigate the minefield of tax law, you may benefit from seeking personal advice from an expert like me.
Working with an expat financial advisor like me can assist you in a variety of ways, such as helping to find out the right ISA provider for you, which type of ISA would suit your needs, and whether you may benefit from ISA transfers.
My personalised advice can also help you to better understand the tax implications of ISAs to enable you to invest with confidence.
So, can you still use your ISA if you move abroad?
To sum up, there are a few important takeaways that you need to remember when it comes to your ISAs when moving abroad:
- Typically you can only contribute to your ISA or open a new one if you’re a UK resident.
- However, the exception to this is if you’re a Crown servant living abroad, or the spouse of one.
- Even if you’re abroad, you still typically don’t have to pay tax on the growth from your UK ISAs and can usually transfer them between providers at will.
- If you’re moving abroad permanently, you may prefer to transfer the funds from your existing accounts to another investment product in your new country.
- If you’re unsure of any tax complications, you may benefit from speaking to a financial advisor like me.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
This article is for informational purposes only and does not constitute financial advice.
All contents are based on our understanding of HMRC legislation, which is subject to change.
Dan is an experienced Senior Financial Consultant at W1 Investment Group with over 18 years experience. He helps international and expatriate clients make tax-efficient savings and investments in Europe and worldwide.