Why there is no need to pay taxes when ISA is sold

MrJustin123

Hello,

A little bit of a back ground:
 - I currently work and live in the UK
 - I invest through stocks and shares ISA
 - I am planning on leaving the UK to live in one of EU countries

I have a headache now trying to figure out what to do with my ISA, should I keep it in the UK, or should I sell it before moving out.

I contacted tax people in the destination country and they explained me when taxes do and doesn't need to be paid on income from another EU, Switzerland, Norway and the UK.

If ISA is being sold while I am a resident in one of the EU countries, taxes do not need to be paid in destination country if:
- income has a tax relief in the UK, or
- income has 0% income tax tariff/rate in the UK

In other cases it would need to be paid. 

I just wanted someone to help me to understand, if any of the above are applicable to ISA.

Thanks

[Deleted User]

Hi,

do you get an income from your ISA, or if selling at a profit, do you mean capital gains tax, CGT?

kuratowski

I would say it is neither of those, income or gains inside an ISA are not part of your taxable income or taxable gains.  In UK taxation, such income or gains are treated as if they don't exist at all, it's not a tax relief or a 0% rate.

I think expats are usually advised to liquidate their ISAs, before they leave the UK.  However, the good news is that investments within UK pensions are usually treated as non-taxable by other countries.  For certainty, you need to read the tax treaty that applies to the country you plan to live in:

https://www.gov.uk/government/collections/tax-treaties

Speaking of good news, if you are going to be working while you are abroad, don't neglect your UK state pension, you should definitely consider class 2 NICs if eligible as they are the best value, risk free investment you could ever make.

MrJustin123

kuratowski said:

I would say it is neither of those, income or gains inside an ISA are not part of your taxable income or taxable gains.  In UK taxation, such income or gains are treated as if they don't exist at all, it's not a tax relief or a 0% rate.

I think expats are usually advised to liquidate their ISAs, before they leave the UK.  However, the good news is that UK pensions are usually treated as non-taxable by other countries.  For certainty, you need to read the tax treaty that applies to the country you plan to live in:

https://www.gov.uk/government/collections/tax-treaties

Speaking of good news, if you are going to be working while you are abroad, don't neglect your UK state pension, you should definitely consider class 2 NICs if eligible as they are the best value, risk free investment you could ever make.

Thanks,

I had a feeling this would be the case, just wanted to make sure i dont miss anything.

I am considering about Class2 NIC payments, just trying to work out some details

Thanks again

NSG666

I've been looking at this as I've got a stocks and shares isa and wondered what would happen if we move to Portugal. It seems that increases in the value are taxed in Portugal regardless of whether you take anything out of them or not. As far as I can understand it, this is because isa's are not taxable in the UK as opposed to e.g. interest on cash in the bank which is taxable income (although you don't pay tax on it if less that your Personal Allowance)

Apparently some ISA providers do not allow you to keep your ISA with them if you move out of the UK so even if you wish to retain your ISA you might need to switch to a different provider.

NSG666

kuratowski said:

I would say it is neither of those, income or gains inside an ISA are not part of your taxable income or taxable gains.  In UK taxation, such income or gains are treated as if they don't exist at all, it's not a tax relief or a 0% rate.

I think expats are usually advised to liquidate their ISAs, before they leave the UK.  However, the good news is that UK pensions are usually treated as non-taxable by other countries.  For certainty, you need to read the tax treaty that applies to the country you plan to live in:

https://www.gov.uk/government/collections/tax-treaties

Speaking of good news, if you are going to be working while you are abroad, don't neglect your UK state pension, you should definitely consider class 2 NICs if eligible as they are the best value, risk free investment you could ever make.

Sorry to hijack the OP post.

I'm not challenging you as I'm still not sure what the situation is but when looking for info on tax on pensions in Portugal the best I can determine is that UK pensions are not taxed in the UK but will be taxed in the country you are resident in (Portugal in my case). The only possible exception to this is for someone who receives a civil service / gov pension but as that does not apply to me I didn't look too closely at that.

There seems to be a lot of conflicting info and smoke an mirrors surrounding this no doubt by the overseas tax specialists who want you pay them for their advice. Do you have a definitive guide or source of info? Thanks

kuratowski

I think the most authoritative source is the tax treaty itself.  You may be able to find a more specialist expat forum with people there who can help you to make sense of it.

However, I should clarify that the sentence in bold above was intended to refer to the taxation of the investments inside the pension wrapper, during the accumulation phase - i.e. the phase I assumed the OP to be in at present.  I did not intend to refer to taxation of withdrawals from the pension during the retirement phase.  This would most likely be treated as income in the country in which you are resident, and you may not get the benefit of the 25% tax free lump sum you would obtain in UK taxation, so you would need to seek out specialist knowledge here.

Jeremy535897

There seems to be a lot of conflicting info and smoke an mirrors surrounding this no doubt by the overseas tax specialists who want you pay them for their advice.

The real problem is that this sort of work is only worth doing when the amounts involved are very significant. Just to acquire the knowledge base, and cover the risks of getting it wrong, mean that advisory work of this nature is very expensive. You are more likely to be told it's not worth the adviser's while to give the advice, than be charged fees out of proportion to the tax at issue.

So far as non-public sector UK pensions and Portuguese residents are concerned, if you are Portuguese resident for the purposes of the UK-Portugal double tax agreement (Article 4), you pay tax on a UK pension in Portugal, not the UK (Article 17), as you have said. Then you need to look at how Portugal actually does tax any withdrawals.

sheramber

https://www.gov.uk/individual-savings-accounts

If you move abroad

If you open an Individual Savings Account (ISA) in the UK then move abroad, you cannot put money into it after the tax year that you move (unless you’re a Crown employee working overseas or their spouse or civil partner).

You must tell your ISA provider as soon as you stop being a UK resident.

However, you can keep your ISA open and you’ll still get UK tax relief on money and investments held in it.

You can transfer an ISA to another provider even if you are not resident in the UK.

You can pay into your ISA again if you return and become a UK resident (subject to the annual ISA allowance).