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ISAs as a US Resident

ISAs as a US Resident

Old Jan 11th 2015, 11:33 pm
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Default ISAs as a US Resident

I moved to the US in 2014. I have shares and ISAs with TD Waterhouse UK. TDW UK does not like having non resident account holders, especially resident in the US. I will be back in the UK in max 3 years time.

Some questions...

With regards to the Trading account ... TDW UK seem to have indicated that I can transfer them to the US branch. Seems OK. Any issues? I haven't seen anyone, anywhere in the forum indicate that they have been offered this or that it is an option. (It was just the person who answered customer support...)

With regards to the Trading ISA account ... will TDW UK hold them in suspense whilst I am overseas with the proviso that I don't trade in it? If they don't do that, does anyone know of a broker who will hold the ISAs for me till I come back as I don't want to sell them?

Thanks for your help.
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Old Jan 13th 2015, 3:15 am
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Default Re: ISAs as a US Resident

Originally Posted by wygde3 View Post

With regards to the Trading account ... TDW UK seem to have indicated that I can transfer them to the US branch. Seems OK. Any issues? I haven't seen anyone, anywhere in the forum indicate that they have been offered this or that it is an option. (It was just the person who answered customer support...)
If you own investment funds in your UK TDW account they are probably PFICs for IRS tax purposes and that is bad. Cross-border trading will lead to many tax complications. You can always simply sell everything and move it all to the US.

With regards to the Trading ISA account ... will TDW UK hold them in suspense whilst I am overseas with the proviso that I don't trade in it? If they don't do that, does anyone know of a broker who will hold the ISAs for me till I come back as I don't want to sell them?

Thanks for your help.
You can hold an ISA as a non-UK resident, but cannot contribute to one. It is up to TDW as to whether they will allow you to keep the account or ask you to close it now that you are a US resident.

The IRS does not recognize the ISA wrapper. It looks right through it to the underlying investments so that to the IRS it is just like your regular TDW trading account. So you are taxed on all gains and have to deal with the same PFIC problems. It is probably not a foreign trust, but it's still not a good thing for a US tax payer to own

Google "ISA US tax resident"
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Old Jan 13th 2015, 10:08 pm
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Default Re: ISAs as a US Resident

http://britishexpats.com/forum/trail.../#post11532428

Oh yeah, reason #6 - it might also be a PFIC and have to be reported on 8621.

I suppose in this case he is thinking of going back but I suppose the logical thing would have been to bang it into a SIPP before becoming US tax resident as those are recognized under the tax treaty. Still have to do 3520 though. And this assumes the SIPP company will do the 3520-A, or give you the information to complete it.

So the only thing left is to cash it in and put it into some sort of US investment, which really depends on how much you've got, how much you're paid (contribution room) and what you want to do with it.
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Old Jan 14th 2015, 3:56 am
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Default Re: ISAs as a US Resident

Originally Posted by Steve_ View Post
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I suppose in this case he is thinking of going back but I suppose the logical thing would have been to bang it into a SIPP before becoming US tax resident as those are recognized under the tax treaty. Still have to do 3520 though. And this assumes the SIPP company will do the 3520-A, or give you the information to complete it.
Some would say 3520 isn't necessary as a SIPP qualifies as a pension plan. IRS office at the London US Embassy doesn't recommend any foreign trust filings for a SIPP.

So the only thing left is to cash it in and put it into some sort of US investment, which really depends on how much you've got, how much you're paid (contribution room) and what you want to do with it.
A ROTH is is the obvious place for it.
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Old Jan 14th 2015, 5:08 am
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Default Re: ISAs as a US Resident

Originally Posted by nun View Post
A ROTH is is the obvious place for it.
How much trouble is the OP going to have if they do, indeed, return to the UK within the next 3 years and want to get the money out of the Roth IRA and back into some kind of UK retirement account?
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Old Jan 14th 2015, 2:05 pm
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Default Re: ISAs as a US Resident

Originally Posted by md95065 View Post
How much trouble is the OP going to have if they do, indeed, return to the UK within the next 3 years and want to get the money out of the Roth IRA and back into some kind of UK retirement account?
Even before you are 59.5, you can always take out your contributions from a ROTH penalty and tax free. There are also ways to get at the earnings too, although they are a bit more complex.
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Old Jan 14th 2015, 9:22 pm
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Default Re: ISAs as a US Resident

Originally Posted by nun View Post
Some would say 3520 isn't necessary as a SIPP qualifies as a pension plan. IRS office at the London US Embassy doesn't recommend any foreign trust filings for a SIPP.
Well I suppose it depends on what the "wrapper" is actually considered to be, but generally pensions are held in trust, ergo a trust held by an FFI is a foreign trust by definition and subject to reporting under 6048(b). Have a look at IRS Form 8891 which is for reporting Canadian RRSP and RRIF accounts, the instructions say it serves in lieu of form 3520. (Note the reporting is for: "annuitants and beneficiaries") Personally I would think the "wrapper" is a trust. Or possibly even a PFIC, so still subject to reporting.

And you've got to claim the tax treaty benefit, it's not automatic, so that means an 8833 even in the case of a pension. At which point the IRS will no doubt figure out what they think it is.

Which brings me to the point I was going to make - there's another big downside to holding onto an ISA or any other non-pension trust/PFIC like investment that depends on you being resident in another country.

The CRA and the IRS can access each other's systems under the tax treaty, which is why Form 8891 was introduced in 2002, because the IRS can see all the RRSP trust filings, making 3520-A unnecessary.

Both HMRC and the IRS are very keen to go after people evading tax and if they haven't already done it, they will link their systems in the same way sooner or later. So if you have an ISA, you cannot hide it from the IRS.

Admittedly it might be a very small sum so the IRS may not bother but I'm here to tell you I can think of various examples where the CRA has gone after Canadians who've gotten a 1099 or whatever and not declared it on their Canadian tax returns, or they've said they're not resident and the CRA has decided they are, and spit out a bill based on US tax slips.

So the IRS may not care much, but I wonder if that will change if HMRC start winding them up.
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Old Jan 14th 2015, 9:41 pm
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Default Re: ISAs as a US Resident

Originally Posted by Steve_ View Post
Well I suppose it depends on what the "wrapper" is actually considered to be, but generally pensions are held in trust, ergo a trust held by an FFI is a foreign trust by definition and subject to reporting under 6048(b). Have a look at IRS Form 8891 which is for reporting Canadian RRSP and RRIF accounts, the instructions say it serves in lieu of form 3520. (Note the reporting is for: "annuitants and beneficiaries") Personally I would think the "wrapper" is a trust. Or possibly even a PFIC, so still subject to reporting.

And you've got to claim the tax treaty benefit, it's not automatic, so that means an 8833 even in the case of a pension. At which point the IRS will no doubt figure out what they think it is.

Which brings me to the point I was going to make - there's another big downside to holding onto an ISA or any other non-pension trust/PFIC like investment that depends on you being resident in another country.

The CRA and the IRS can access each other's systems under the tax treaty, which is why Form 8891 was introduced in 2002, because the IRS can see all the RRSP trust filings, making 3520-A unnecessary.

Both HMRC and the IRS are very keen to go after people evading tax and if they haven't already done it, they will link their systems in the same way sooner or later. So if you have an ISA, you cannot hide it from the IRS.

Admittedly it might be a very small sum so the IRS may not bother but I'm here to tell you I can think of various examples where the CRA has gone after Canadians who've gotten a 1099 or whatever and not declared it on their Canadian tax returns, or they've said they're not resident and the CRA has decided they are, and spit out a bill based on US tax slips.

So the IRS may not care much, but I wonder if that will change if HMRC start winding them up.
As I'm sure you know the status of SIPPs is debated and there are people with different opinions from yours.

The IRS office at the US Embassy doesn't even say you should file an 8833 for a UK pension....I don't like that and would certainly file one for a UK pension that I owned, but not for an ISA. If I owned a cash ISA I would just pay US tax on any interest and file the required informational forms if my accounts exceeded the thresholds. I'd do the same if I owned a stocks and shares ISA, but would avoid PFIC by only owning individual stocks. As that would be a reporting pain and inconvenient I would not own a stocks and shares ISA.
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Old Jan 14th 2015, 10:17 pm
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Default Re: ISAs as a US Resident

Well there is no tax treaty provision that would cover an ISA, so you can't file an 8833 for it.

To me a SIPP and an RRSP are basically the same concept so given that the RRSP clearly is subject to reporting under 6048(b) I can't see why a SIPP wouldn't be, but frankly I don't care because I haven't got one.
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Old Jan 15th 2015, 12:56 am
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Default Re: ISAs as a US Resident

Originally Posted by Steve_ View Post
Have a look at IRS Form 8891 which is for reporting Canadian RRSP and RRIF accounts, the instructions say it serves in lieu of form 3520.
Form 8891 is no longer required.
IRS Simplifies Procedures for Favorable Tax Treatment on Canadian Retirement Plans and Annual Reporting Requirements
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Old Jan 15th 2015, 1:22 am
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Default Re: ISAs as a US Resident

Do you need to file 8833 though...........what if you don't want to invoke the treaty, would you file an 8833 to opt out if you want to use excess FTCs to build up a large tax free US basis in those Canadian plans.

Last edited by nun; Jan 15th 2015 at 1:24 am.
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Old Jan 15th 2015, 1:40 am
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Default Re: ISAs as a US Resident

Originally Posted by nun View Post
Do you need to file 8833 though...........what if you don't want to invoke the treaty, would you file an 8833 to opt out if you want to use excess FTCs to build up a large tax free US basis in those Canadian plans.
The IRS will assume that treaty deferral is elected. Unless:
- taxpayer has already been opting out; or
- a taxpayer who wants to opt-out going forward, must seek IRS consent.

Not sure if there is a specific form to seek IRS consent. Perhaps 8833 could be used. It would be, in general, highly unusual to seek to opt-out of the treaty, for a variety of reasons.
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Old Jan 15th 2015, 1:23 pm
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Default Re: ISAs as a US Resident

I have just come back to this after a few days. Thanks for all the comments some of which have gone in a direction which is very interesting.

Some additional information ... there is only one stock in all the ISAs (4 full years of subscriptions) as it is from my employer's remuneration scheme hence my expectation is that it won't be treated as a PFIC. Correct?

I do fully expect to pay tax on any dividends. I don't intend selling of them so capital gains doesn't come in.

I will be returning to the UK within 3 years and whilst non resident for tax purposes whilst away (apart from the first part year) I fully expect to become tax resident when I return (maybe not the first part year depending on timing). So I don't think being treated as tax resident (notwithstanding the Statutory Residence Test) or non-domiciled will come into it.

Given the above all I want to do is to keep the ISAs, declare them to the IRS, pay the tax on the dividends.

So the big question is ... which broker/institution will hold my ISAs for me in this state (with a declaration by me that I will not transact if that's what they want) whilst I am away?

Haven't seen any experience/suggestions of this. Any ideas anyone?
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Old Jan 15th 2015, 1:43 pm
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Default Re: ISAs as a US Resident

Originally Posted by wygde3 View Post
I have just come back to this after a few days. Thanks for all the comments some of which have gone in a direction which is very interesting.

Some additional information ... there is only one stock in all the ISAs (4 full years of subscriptions) as it is from my employer's remuneration scheme hence my expectation is that it won't be treated as a PFIC. Correct?

I do fully expect to pay tax on any dividends. I don't intend selling of them so capital gains doesn't come in.

I will be returning to the UK within 3 years and whilst non resident for tax purposes whilst away (apart from the first part year) I fully expect to become tax resident when I return (maybe not the first part year depending on timing). So I don't think being treated as tax resident (notwithstanding the Statutory Residence Test) or non-domiciled will come into it.

Given the above all I want to do is to keep the ISAs, declare them to the IRS, pay the tax on the dividends.

So the big question is ... which broker/institution will hold my ISAs for me in this state (with a declaration by me that I will not transact if that's what they want) whilst I am away?

Haven't seen any experience/suggestions of this. Any ideas anyone?
You'll have to ask UK companies for their policies....I wonder if there are any issues with the transfer if you are a non-resident?

If all you own are individual shares of company stock (no funds at all) then there are no PFIC issues.
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Old Jan 15th 2015, 2:46 pm
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Default Re: ISAs as a US Resident

Originally Posted by nun View Post
You'll have to ask UK companies for their policies....I wonder if there are any issues with the transfer if you are a non-resident?
There are big issues. It is very difficult (if not impossible) for a non-UK resident to open a new ISA account. This is effectively what the OP would be doing. The reason is of course it is not permitted for non-UK residents to open ISAs, or to make contributions to existing ISAs. Best to look at Motley Fool or another specialist forum for further information.

TMF: Non residency & ISAs / International - Expat Investors
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