What happens to a JISA or CTF if the holder moves

FatherAbraham

A Junior ISA or a Child Trust Fund account can't (normally) be closed until the holder reaches 18.

An adult moving abroad is sometimes advised to close all UK ISAs (at least, the stocks-and-shares ones) to rebase the holdings for capital-gains tax purposes in the destination jurisdiction.

A problem may arise if a JISA/CTF holder moves to a foreign tax jurisdiction.

Presumably the JISA/CTF non-closure restriction must expose the holder to the unpleasant choice of potential capital-gains taxation on the original acquisition price of investment assets (even though that may have been long before the holder relocated to a new tax residence) or transferring the assets into a cash JISA or CTF before leaving the UK, and then being forced to hold low-return cash until maturity?

(There's also a related issue about how to pay any interest tax or dividend tax due in the new jurisdiction, when the child's income-generating assets and returns are locked up inside an unbreakable wrapper).

Are there any exemptions I've overlooked which can resolve these problems?

Thanks.
FA

Reaper

I don't really see a problem or indeed any decision that can be made.

When the family move abroad they can't surrender it. It will continue to grow tax free in the UK and (if the provider allows it) they can keep contributing.

Whether it is taxed in the new country depends on their taxation laws and whether they have any tax agreements with the UK.

xylophone

The JISA/CTF cannot be closed just because the child moves abroad.

The cash/stock is wholly owned by the child therefore should tax issues arise abroad they arise on the child.

Contributions can continue to be made to CTF/JISA even if the child has moved abroad.

https://www.gov.uk/junior-individual-savings-accounts/add-money-to-an-account

If your child moves abroad, you can still add cash to their Junior ISA.

bowlhead99

FatherAbraham wrote: »

A problem may arise if a JISA/CTF holder moves to a foreign tax jurisdiction.

Presumably the JISA/CTF non-closure restriction must expose the holder to the unpleasant choice of potential capital-gains taxation on the original acquisition price of investment assets

Well, the gains are no greater than they would have been if the child had made their investment outside a JISA. They are just greater than they would have been if the child had been able to sell up and rebase their cost at the point of leaving the UK. The tax is still going to be a lot less than the overall gain.

A partial solution is probably to put the money in something that never needs to be sold, so there isn't any gain for the foreign jurisdiction to tax, until the child becomes an adult and takes it out - by which time, they may be living in a country with no CGT on foreign assets for non-doms (there are many such countries) or they may be back in the UK. And simply cross your fingers that your provider doesn't want to stop servicing you, forcing you to find an alternative one.

However, despite the fact that some investment trusts and funds have been running for decades, you can't guarantee that any single investment will definitely exist in a decade.

Really this is just one potential thing to consider when agreeing to lock up your investment money for a long time in exchange for a UK tax benefit. You could choose to use a JISA with no UK tax and lockup to age 18; or a pension with no worldwide tax and lockup until late 50s or beyond; or unwrapped in bare trust and hope the child can fit the income and gains into their personal allowances; or in the parents names inside or outside a tax wrapper using up their allowances and reliefs instead of the child's....

(There's also a related issue about how to pay any interest tax or dividend tax due in the new jurisdiction, when the child's income-generating assets and returns are locked up inside an unbreakable wrapper).

Well, *if* the new jurisdiction even has a CGT regime or charges income tax on foreign unremitted dividends and interest - which a lot of jurisdictions do not - and the child has enough other income in their country of residence to not have enough allowance/deduction to cover what they made in the ISA in a particular year, then yes they will have to get some money from somewhere to pay the tax.

Usually most kids don't have very much independent income between the ages of 2 and 18 and the money that went into their JISA before departing the UK will have come from generous parents or benefactors. Where those amounts deposited into the LISA are so large as to be generating meaningful amounts of income or gains in a tax year while the child's abroad, it might be presumed that their parents or relatives can afford to bail the child out (if the child doesn't have their own independent income) and give or lend their child sufficient money to pay the tax.

Are there any exemptions I've overlooked which can resolve these problems?

Just the standard ones.

For example, if the reason the child is going abroad is to get treatment for their terminal illness they can use the relevant exemption to 'break' their JISA and extract the cash.

Whereas if the reason the child is going abroad is that it's a lifestyle choice of the parent, the UK taxman has no reason to say "ah, forget what I said about you having to lock it up until you're 18 in exchange for these UK tax benefits, just take it out now if you like".

So any exemption you would be looking for would be something offered by the tax authority of the jurisdiction to which you're moving. For example if you go to Singapore they don't have such thing as CGT. They also don't charge you tax on unremitted foreign investment income. Same for Hong Kong. Many Middle Eastern locations don't even have tax on investment income let alone investment gains or foreign interest that stays in a foreign country.

FatherAbraham

FatherAbraham wrote: »

Are there any exemptions I've overlooked which can resolve these problems?

Oh, rebasing is actually possible -- just sell the assets within the CTF/JISA wrapper, then repurchase the same assets. This incurs two transaction fees, but establishes a new cost base for capital-gains-tax purposes. However, one needs to know about any special rules in the destination CGT regime (the UK has a 30-day rule for sale and repurchase of CGT-liable assets).

bowlhead99

Yes, as the wrapper is opaque from HMRC perspective but transparent for most other jurisdictions. The whole reason that CGT might be an issue is that these other jurisdictions can "see inside" your ISA. So, if you want to deliberately cash in a particular asset and create a gain, and then do a new investment with a new base cost - you can; ou just can't take the proceeds away and spend it. Similarly if you want to avoid creating gains you can carry on holding, where possible.

The problem is simply if the investment vehicle you are in does a mandatory buyback or liquidation without you being able to roll your money into a successor product; or the JISA manager decides to stop allowing non UK residents to hold their JISAs and you can't find a JISA manager who will let you transfer the existing assets to him "in specie"; the child will be a forced seller of the investment (s) and may create a gain in a tax year in which you/they didn't want to create a gain, which would not have been an issue if they were living in a country in which UK ISAs were opaque (such as, the UK).

grey_gym_sock

bowlhead99 wrote: »

Well, *if* the new jurisdiction even has a CGT regime or charges income tax on foreign unremitted dividends and interest -

income inside a JISA/CTF is not just unremitted, but unremittable. some jurisdictions may not charge tax on the latter, even if they do on the former.

bowlhead99

grey_gym_sock wrote: »

income inside a JISA/CTF is not just unremitted, but unremittable. some jurisdictions may not charge tax on the latter, even if they do on the former.

Well, jurisdictions *may* do anything they want because they can change laws to suit themselves on a whim. But can you think of any such jurisdictions?


Generally on dividends received outside your country of residence, that country of residence will either:

- not have a tax on dividends anyway;
- have tax on dividends including overseas dividends whether brought to the country or not;
- have tax on the income but only if/when it's remitted to the country

I'm not aware of somewhere that taxes dividends including foreign dividends whether or not brought to the country "unless it can't be brought to the country until a date after x/x/xx". If they intend to tax the worldwide income that you have received and can invest in more stuff, they will. Using a trust (such as a pension) may stop them seeing the income until you draw it out of the trust/pension -because it's not in your name, it's in the trustees' name - but that's not relevant to an ISA which is a personal account.

Basically a JISA is a product where you have the use and benefit of the income proceeds to buy any investment you like, you just can't move the cash to the bank account of your choice for a few years until maturity even though you have definitely got use of the proceeds. You could even use those proceeds to buy shares listed on the stock exchange of the country in which you live.

E.g., you live in the US, inside your JISA you get some income from your IBM shares and use it to buy some Microsoft shares. The fact that you can't immediately move the proceeds to your New York bank account would not diminish your liability to tax on the income. You're a US person earning income from a US company.

grey_gym_sock

bowlhead99 wrote: »

Well, jurisdictions *may* do anything they want because they can change laws to suit themselves on a whim. But can you think of any such jurisdictions?

i was thinking that the UK does something like this (so in any case, it's of no direct relevance to somebody leaving the UK). it's possible to report "unremittable income" on the foreign pages of a tax return.

however, looking at the tax return notes - https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/604126/sa106-notes-2017.pdf at p. 1 - unremittable income is defined very narrowly, as "foreign income that you couldn’t bring to the UK because of exchange controls or a shortage of foreign currency in the overseas country". so it looks like this 1 isn't going to fly.