ISA rules if living abroad

Tudor_Owen

My sister has lived abroad since July of this year. She wants to pay some money into an existing Virgin Money ISA when she comes to the UK for a visit this month (December), but Virgin Money want her to renew her ISA declaration, including ticking a box declaring that she is not residing abroad for tax purposes. She cannot tick that box, obviously. However, I checked the relevant Gov UK page, which says that she CAN contribute to an existing ISA within the same tax year in which she moved abroad.
Is that correct?

Alexland

Hi

Yes you can continue to contribute in the tax year you move abroad and then keep the ISA until you return when you can resume contributions. However an ISA provider might implement more restrictive requirements if they choose. Has she tried phoning them to explain the situation?

https://www.gov.uk/individual-savings-accounts/if-you-move-abroad-or-die

However if you stop being a UK resident the other country might want to start taxing you on your 'overseas' savings or investments.

Alex

dunstonh

ISAs are a UK tax wrapper. They are not recognised as tax free by most other countries. So, if she is now resident in another country, she should be declaring the ISA and paying the appropriate tax on it in the country she is resident.

capital0ne

Depends where you are living abroad, if it's crown territory and you are employed by the military or civil service and you're pay is received in your UK bank this is deemed okay for ISAs. There may be other circumstances as well.

bowlhead99

Tudor_Owen wrote: »

but Virgin Money want her to renew her ISA declaration, including ticking a box declaring that she is not residing abroad for tax purposes.
She cannot tick that box, obviously.

Correct, she is unable to make the declaration and tell Virgin (and thereby, tell HMRC) that she is not residing abroad, because presumably she is, and she doesn't want to lie and pretend to be UK resident which would result in her carrying on paying UK taxes on all her worldwide income and gains.

However, I checked the relevant Gov UK page, which says that she CAN contribute to an existing ISA within the same tax year in which she moved abroad.
Is that correct?

That's true but generally she would be expected to make those contributions before she left.

What usually happens when someone moves abroad during a tax year and stays away for at least a full tax year - is that rather than having the whole tax year as UK resident or foreign resident, it is treated as a split tax year with a 'before x date' when they are UK resident and an 'after' when they are not. Effectively the one April-April tax year is turned into two distinct periods. If she left the UK in September, any December events are considered with regard to her 'non-UK resident' status, while July events were considered with regard to her 'UK resident' status.

Splitting the tax year is quite convenient as in the first (uk resident) period they get a full set of annual allowances - income tax personal allowance, ISA contribution allowance, etc - even though it's for a short period (e.g. you can put in a full £20k into the ISA during that window even though it's only a 6-month 'year').

Say she left to move abroad on 30 September 2017 and was having split year treatment. She'd have a window of 6 April to 30 September in which she can stuff £20k in her ISA. After that point, her last 'UK tax year' has ended and she can't keep contributing to an ISA because only UK residents can contribute to ISAs, and she isn't one any more. In that case, if she's now in December, she's in a tax 'year' where she's no longer a UK resident, and her previous ISA provider are not going to let her activate and subscribe to an ISA because she can't make the declaration that she's UK resident.

Bottom line, you can't subscribe new money to an ISA when you're not UK resident unless you fit within the narrow exceptions alluded to by capital0ne. The gov.uk website mentions somewhat simplistically as a high level summary: "you can’t put money into it after the tax year that you move" but if you take advantage of the 'split year' treatment than aftter the split date you are going to be considered to be 'after the tax year that you moved'.

Alternatively, she could potentially tell HMRC that she does not want the kind concession of a split-year treatment and instead wants to continue to be UK resident all the way through to the normal end of the UK tax year on 5 April 2018 because she has a closer connection to home here than to anywhere else. Then there's no problem telling Virgin that she's a UK resident, because that would be in line with what HMRC think too.

But being a UK resident all the way through to next April, she would be paying UK tax on all her worldwide earnings and income and gains etc, which is probably undesirable given that her new country may consider her resident in their country from the time she arrives, and want to tax her too, and then she'd need to mess around trying to claim double tax relief which can be messy and usually leave her worse off.

Dunstonh's point that many other countries won't recognise a UK ISA wrapper is well worth bearing in mind. Unless we're talking hundreds of thousands she could just put it in an 'unwrapped' saving account instead. The advantage of keeping the ISA is really just on return to the UK, when you want to quickly build up a balance in an ISA wrapper again and have an annual subscription limit of £x a year based on the rules at that time ; if some of your money is *already* ISA wrapped because it retained its status from when you were last using it, that can be a benefit.

Working_abroad

Is there any implications if your ISA earnings automatically reinvests back into itself?

Alexland

Working_abroad wrote: »

Is there any implications if your ISA earnings automatically reinvests back into itself?

From a UK perspective that's fine as it is not treated as a new ISA contribution.

intalex

I'm not 100% sure, but isn't non-ISA savings interest non-taxable in the UK for non-residents (regardless of PSA)?

If so, wouldn't non-ISA savings options be better anyway at the comparatively higher interest rates vs ISA savings?

Though sure beats me why a bank or building society wouldn't offer ISA savings rates on par with non-ISA savings rates...

masonic

intalex wrote: »

Though sure beats me why a bank or building society wouldn't offer ISA savings rates on par with non-ISA savings rates...

ISAs are a more complicated product than a savings account. HMRC used to publish a 250 page document containing guidance for ISA managers until it finally gave up and now splits it up into a series of long webpages. The banks save money by offering reduced rates to offset the additional costs associated with offering them.

londoninvestor

masonic wrote: »

ISAs are a more complicated product than a savings account. HMRC used to publish a 250 page document containing guidance for ISA managers until it finally gave up and now splits it up into a series of long webpages. The banks save money by offering reduced rates to offset the additional costs associated with offering them.

Some people may remember the early days of cash ISAs, when the rates were often higher than conventional savings accounts.

Back then, the total amount you could have in your ISA was small (you'd only had a few years' allowances to put in, and the allowance was £3k a year). So they were often loss-leading products - much like some of today's current accounts which pay attractive interest, but only up to a fairly low maximum balance.

None of that these days, when you could have built up a 6-figure sum in a cash ISA - and even a new ISA that doesn't accept transfers can have a £20k balance.

masonic

The difference between HTB ISA rates vs conventional cash ISA rates is a good illustration of the above point.